By any measure, Apple stock is still undervalued. The manic pace of sales during new product launches provides a momentum for the stock that is almost unheard of. Add to this the dividend declared by the company, which means more money managers will now have to buy the stock. But for the everyday-Joe on the street, how can you have your Apple cake and eat it too?
AAPL-a company many love to love and love even more if they own shares. Many individuals own a small position-we'll say 100 shares. They bought late last year when the price was just below $400.00, so we'll say $395.00. At $600.00, the closing price for the just finished first calendar quarter of 2012, this represents a paper profit of more than 50%. Here's how to stay in the stock and reap some small profits at the same time, thereby having your cake and eating it too. (Calculations do not include trading fees, which average about $8.00 each or $16.00 per round trip. A round trip is one EACH buy and sell order for the same security.)
First, set some widely spaced buy and sell targets. Analyst price targets over the next 12 months range from $670.00 to $1001.00. However, you can also expect the price to correct, or go down, at least 3-4 times during the same 12 months by about 4% to 10%. The upside gives you the opportunity to sell, while the corrections the opportunity to buy.
Start off by selling 10 shares when the price reaches $625.00. You now have a real profit of $2,300.00. Your next 3 sell signals:
$660.00, $775.00 and $925.00 for 10 shares each. Using the First-In-First-Out method employed by most trading software, these 3 trades give you real profits, respectively, of $2,650.00, $3,800.00 and $5,300.00, based on your original price of $395.00 per share.
Since we know the stock will correct, we'll set 3 reasonable buy signals based on prices in the previous paragraph. The first will be $600.00, the second $690.00 and the third $825.00. This is just a starting point and you can change the figures any way to suit yourself. Since Apple now pays $2.65/quarter in dividends, you could try to time your transactions to be eligible for this payment. Keep in mind that even if you still have all 100 shares, this amounts to only $265.00 per quarter. If you can do it, fine but keep focused on the bigger picture of those capital gains from the sale of stock. If you continue down this path, you will recoup your entire $39,500.00 investment before all your shares are sold and, don't forget, keep the shares for a year or more and you get favorable capital gains tax treatment on your profits and your dividends, unless the law changes.
Disclosure: I am long AAPL.
Additional disclosure: I am currently using the strategy outlined in this article.