Apple No Longer a Growth Stock Following Flurry of Price Target Downgrades

I eat apples every day. I like Gala apples. I like Ambrosia apples. Golden Delicious are really good too, then there's this newly-created hybrid named "Cosmic Crisp." Wow, those are tasty. I don't love all apples though. 

Some readers may recall that back on December 23r I wrote about taking on a long position in Apple AAPL for the Santa Claus rally period. Needless to say, this trade went awry. I had company, sort of. Five-star rated (by TipRanks) analyst Dan Ives of Wedbush reiterated his "buy" rating on AAPL and his $300 target price coming out of that weekend. In his accompanying piece, the Ives team wrote that iPhone 16 sales were running "slightly ahead to generally in line with expectations."

The note went on, "We believe Apple is set to have a strong holiday season ahead as iPhone 16 upgrades across its installed base are trending well into Christmas based on our recent Asia supply chain checks. Importantly, Apple Intelligence has not rolled out in China or many other countries with April the likely timetable for these AI launches along with a Chinese tech partner also named very soon to catalyze the timing of this rollout in this key region."

Earnings Are Coming

Apple is set to report the firm's fourth-quarter earnings a week from this Thursday, after the closing bell on January 30. Wall Street is looking for a GAAP EPS of $2.35 on revenue of $124.15 billion. This would compare to EPS of $2.18 for the year-ago period on sales growth of roughly 3.8%. I saw the stock running significantly further after breaking out from a bullish ascending triangle pattern which had happened earlier in December that it would.

My trade was in the green until the end of the year. It hasn't seen too many "up" days since. Readers of the Doug Kass Daily Diary likely noticed that last Thursday, I had admitted that my trade had failed and was close to getting flat this stock. As I informed Kass' readers, "I don't think I need to own this name here."

Rough Tuesday

Top of the news, this morning, headlines crossed that Edison Lee, a four-and-a-half-star rated analyst at Jefferies, had downgraded AAPL from "Hold" to "Underperform" which is a sell-equivalent, with an unusual target price of $200.75, down from an also unusual $211.84. Jefferies now expects to see "weak" iPhone sales and weak sales for Apple's array of consumer electronic products as well. Jefferies also expects Apple's Q1 revenue guidance to print light of expectations in a week and a half.

As if that was bad enough, five-star analyst Ananda Baruah of Loop Capital also downgraded AAPL on Tuesday morning, from "Buy" to "Hold" while taking his target price down to $230 from $275. This came after Loop's supply chain checks implied a "material" reduction in demand for the iPhone in the current quarter and potentially getting weaker from there.

Away from those two analysts, five-star rated Samik Chatterjee of JP Morgan kept his "overweight" rating on AAPL, but did cut his target price from $265 to $260, citing reduced market share in Chinese markets and a lack of traction for its newly rolled out AI-features.

The Chart

Readers will see here that I have left the ascending triangle in place so you can see what I was thinking. I should have finished getting out of this name on Friday. I did not, as the market rallied, and I thought AAPL might go with it. The last sale is currently just about at the half-way back point (50% retracement) of the early August low through late December high rally. Losing this spot makes a run at the 200-day SMA from above a near certainty.

Relative strength is very soft, just starting to approach what could be called "technically oversold." Additionally, the stock's daily MACD is set up quite bearishly with the histogram of the nine-day EMA, the 12-day EMA and the 26-day EMA all below zero with the 12-day line running well below the 26-day line.

There is a chance that institutional support shows up at the 200-day SMA (currently $217.30). That said, should this line break, portfolio managers up and down Wall Street will be looking to reduce long-side exposure to this stock at roughly the same time. I expect to get out of what is left of my long position later today. Will I buy it back? If that support shows up, sure. I am a financial mercenary after all.

Apple is a cash flow stock now, not a growth stock and their technology is not at the forefront of anything. What they have is a semi-captive user base. Time for this old dog to get the heck out of Dodge City. At the last sale, I'll be taking a 3.4% loss on the entire misadventure. Cut one's losses and move on. That's how one avoids getting married to a position or getting one's face ripped off. It does help that the old P/L is having a good day on Tuesday. It will be like "poof" it never happened. Rock on.

At the time of publication, Guilfoyle was APPL.