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1/29/2019 Apple has taken a beating following its China warning.

arning. Here's what the pros are saying about the stock ahead of earnings. (AAPL) | Mark…

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Apple has taken a beating following its China


warning. Here's what the pros are saying about the
stock ahead of earnings. (AAPL)
Rebecca Ungarino
Jan. 29, 2019, 11:27 AM

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1/29/2019 Apple has taken a beating following its China warning. Here's what the pros are saying about the stock ahead of earnings. (AAPL) | Mark…

REUTERS/Soe Zeya Tun

Apple (https://markets.businessinsider.com/stocks/aapl-stock?
utm_source=markets&utm_medium=ingest) is set to release its
first-quarter results Tuesday afternoon. It is one of the most
highly anticipated reports in years.
Strategists point out that despite recent volatility and some
uncertainty surrounding the upcoming report, shares are not
expected to see a particularly large move.
Apple shares have fallen 33% since their October high of $233.47.
Watch Apple trade live
(https://markets.businessinsider.com/stocks/aapl-stock?
utm_source=markets&utm_medium=ingest).

Apple (https://markets.businessinsider.com/stocks/aapl-stock?
utm_source=markets&utm_medium=ingest) shareholders are gearing
up for one of the company's most crucial earnings reports in years, which is due

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1/29/2019 Apple has taken a beating following its China warning. Here's what the pros are saying about the stock ahead of earnings. (AAPL) | Mark…

to come following Tuesday's closing bell.


 

The stock has fallen sharply from its recent highs, making its valuation more
attractive, according to some Wall Street analysts. Others point out the options
market is pricing in a relatively small move for the stock in reaction to its report.

Tuesday's report comes four weeks after the tech giant warned
(https://markets.businessinsider.com/news/stocks/apple-stock-
price-google-trends-saw-iphone-problems-years-ago-2019-1-
1027842045?utm_source=markets&utm_medium=ingest) that its
quarterly revenue would be approximately 7% below what it had previously
expected (https://www.businessinsider.com/apple-warns-holiday-
quarter-was-a-huge-miss-2019-1?
utm_source=markets&utm_medium=ingest), citing weak iPhone sales
"primarily" in China. The rare announcement ushered in a chorus of price-
target cuts (https://www.businessinsider.com/apple-profit-warning-
how-wall-street-reacted-2019-1?
utm_source=markets&utm_medium=ingest) from Wall Street analysts
and mounting fears of a broader economic slowdown.

Read more: 4 major questions remain ahead of Apple's most critical


earnings report in years (https://www.businessinsider.com/four-
big-questions-apple-earnings-2019-1?
utm_source=markets&utm_medium=ingest)

At this juncture, after a 33% drop from its October high, Apple is trading at just
13 times forward earnings, compared with the S&P 500's valuation of over 15
times. In other words, Apple is less expensive than the broader market right
now, by a popular measure of valuation. Erin Gibbs, portfolio manager at S&P
Investment Advisory Services, told Business Insider she likes Apple's valuation
at its current level (the stock is held in portfolios the firm advises).

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1/29/2019 Apple has taken a beating following its China warning. Here's what the pros are saying about the stock ahead of earnings. (AAPL) | Mark…

"We know that 2019 is a tough comparable year," Gibbs wrote in an email on
 
Monday. "It has almost flat expected EPS growth in 2019 and slightly
contracting revenues. Apple really needs to beat on top and bottom line so we
can be reassured that the 12% growth expected in 2020 can be achieved.

"But this is a tough year for most of the Tech sector. 2019 expected EPS growth
for the S&P 500 Technology Hardware & Equipment industry 1.5%. So Apple it
not far off from its peers."

In the past, Apple's valuation has found stabilization between 10 times and 11
times forward earnings — even in 2016, when the outlook was particularly
gloomy and earnings underwent a "significant contraction," Gibbs said.

Ahead of the report, Apple remains a "great barometer for gauging how
investors feel about the market overall," said JJ Kinahan, chief market strategist
at TD Ameritrade.

The widely held name


(https://markets.businessinsider.com/news/stocks/apple-stock-big-
money-investors-losing-interest-rbc-says-2018-12-1027795127?
utm_source=markets&utm_medium=ingest) heavily influences indexes
and exchange-traded funds, he told Business Insider in an email on Monday —
so earnings results carry "not just financial implications but there is a
psychological bent to them as well."

"Given the other reports we’re seeing around Asia, this is one of those situations
where there may be more unknowns going forward, which means investors in
AAPL could be taking on greater risks," he wrote. "Investors need to take this
into consideration when coming up with their investing thesis for AAPL."

So far this year, Apple is among the top stocks that TD Ameritrade's retail
investors have bought. That stands in stark contrast to last year's activity, when
it was one of the top names that clients sold. Still, Apple has been the top
holding by its retail investors for the past year.

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1/29/2019 Apple has taken a beating following its China warning. Here's what the pros are saying about the stock ahead of earnings. (AAPL) | Mark…

Read more: The worst may be over for Apple's iPhone slump, Ming-
 
Chi Kuo predicts (https://www.businessinsider.com/apples-iphone-
slump-almost-over-says-ming-chi-kuo-2019-1?
utm_source=markets&utm_medium=ingest)

Despite the stock's volatility in recent months — and particularly its dramatic
reaction earlier this month when Apple made its revenue announcement — the
options market isn't implying the stock will see an outsized move on earnings.

The market is pricing in a move of about 5% in either direction, said Chris


Jacobson, senior derivative strategist at Susquehanna. That's essentially in line
with the average realized move of 4.4% over Apple's last eight quarterly reports,
he noted.

"Even with the pre-release and the ~10% sell-off in the shares on that
announcement, the options market continues to price in notable near-term
volatility reflecting continued investor uncertainty," Jacobson said.

In a separate note to clients on Monday, Susquehanna's derivative strategists


said investors are betting broadly that technology stocks could see particularly
outsized moves this week.

The team highlighted how investors are trading Invesco's QQQ


(https://markets.businessinsider.com/etfs/invesco-qqq-trust-series-
1?utm_source=markets&utm_medium=ingest) exchange-traded fund,
which tracks the performance of the tech-heavy Nasdaq 100 index
(https://markets.businessinsider.com/index/nasdaq_100?
utm_source=markets&utm_medium=ingest).

"In Invesco QQQ Trust, we've seen a trend of 'tail buying' over the past few days,
implying investor think there could be notably surprise moves in either
direction," they wrote, adding that nearly half of the fund's holdings, including
Apple (https://markets.businessinsider.com/stocks/aapl-stock?
utm_source=markets&utm_medium=ingest), Amazon

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1/29/2019 Apple has taken a beating following its China warning. Here's what the pros are saying about the stock ahead of earnings. (AAPL) | Mark…

(https://markets.businessinsider.com/stocks/amzn-stock?
 
utm_source=markets&utm_medium=ingest), and Facebook
(https://markets.businessinsider.com/stocks/fb-stock?
utm_source=markets&utm_medium=ingest), report quarterly earnings
this week.

Now read:

A hidden trick for turning your iPhone and AirPods into a spy
microphone is going viral. Here's what the feature is really
about. (https://www.businessinsider.com/apple-live-listening-
feature-for-iphone-airpods-intended-for-hearing-loss-2019-1?
utm_source=markets&utm_medium=ingest)
Apple has disabled group FaceTime calls after it was humiliated
on Data Privacy Day by a bug that lets people listen in on you
(https://www.businessinsider.com/apple-humiliated-on-data-
privacy-day-by-facetime-bug-2019-1?
utm_source=markets&utm_medium=ingest)

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1/29/2019 Apple has taken a beating following its China warning. Here's what the pros are saying about the stock ahead of earnings. (AAPL) | Mark…

Markets Insider

SEE ALSO: General Electric's dash for cash is stealing value from
shareholders, JPMorgan says (GE) »
(https://markets.businessinsider.com/news/stocks/general-electric-stock-
price-dash-for-cash-steals-value-shareholders-2019-1-1027906352)
READ NOW: H&M is on a mission to make customers pay full price »
(https://markets.businessinsider.com/news/stocks/hm-plans-get-rid-of-
discounts-2019-1-1027906523)

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