Want to Take a Bite of Apple? Wait for a Pullback

 | May 02, 2017 | 10:00 AM EDT
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Apple (AAPL) , which is a holding of the Action Alerts PLUS portfolio co-managed by Jim Cramer, is scheduled to report its second fiscal 2017 results after the close. Apple sold 78.3 million iPhones in its fiscal first quarter, which ended on Dec. 31, 2016.

For the second quarter, ended on March 31, 2017, analysts are looking for iPhone unit sales of between 51 million and 52 million, which would be flat to slightly higher compared with the same period a year ago.

The sales slowdown should continue into the third quarter. Most investors are looking for third-quarter shipments of 42 million iPhones. For fiscal 2017, analysts expect Apple to sell over 220 million iPhones worldwide.

Earnings are modeled to come in at $2.02 per share vs. the $1.90 per share reported a year ago. Most analysts are looking for margins to be between 38% and 39%, as the company itself forecast in its first-quarter results release.

In the first quarter, Apple was plagued with supply shortages on the iPhone 7. Because of the shortages, the average selling price is expected to jump from $641 last year to as high as $658, as those pricy iPhone 7 sales leaked into the second quarter.

On the first-quarter call, management guided revenue to between $51.5 billion and $53.5 billion, including a $1.2 billion headwind from foreign currency translation. During the first quarter of (calendar) 2017, the dollar picked up some strength, so management may decide to chop a few percent out of third quarter guidance to make up for the currency headwind.

These days, nobody seems to put much effort into estimating iPad sales. Second-quarter consensus iPad sales are 8.2 million and Mac sales are 4.3 million. For the year, analysts are looking for Apple to sell a little over 38 million iPads. Mac sales for the year should be flat, with last year at 18.5 million units.

At the end of the quarter, Apple could have as much as $250 billion squirreled away overseas. Investors are expecting the company to announce a share buyback or an increase in the dividend, or both. Right now, Apple pays a stingy $2.28 per share, which works out to a 1.59% dividend yield.

In terms of valuation, historically the stock trades between 9x and 14x forward estimates. Assuming the company announces the iPhone 8 this fall, analysts think Apple will earn $10.28 per share next year (FY18) on a staggering $248 billion in revenue. The stock is already trading at 14x estimates.

Year to date, Apple shares are up 27% and rose nearly 60% in the last year. It seems to me the good news is already priced into the stock. I would look for an opportunity to take a bite of Apple at a lower price. It doesn't make much sense to chase the stock here.

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