Before you do anything with Apple (AAPL) - long, short, hedge, etc. - you need to answer one question first.
What is your time frame?
Its become clear the odds are high the coronavirus will have some impact on Apple in the current quarter. The company even alluded to that fact in the most recent earnings call. It's possible the impact could spill over into next quarter. We simply don't know yet. If the outbreak continues to spread and more lives are sadly lost, then it will impact Apple's business in the first half of the year.
The company's flagship Foxconn factory has already lost several weeks of production. Will production recommence this week and ramp over the next few weeks? It's not trending in that direction, at least in any way that's significant.
Estimates call for one to two weeks of time required for the Foxconn factory to reach full production after being offline. We can't rule out the possibility that most of February production will be lost for Apple on iPhones and AirPods out of its key Chinese supplier. Add in the potential partial impact on March and a slight slowdown at the end of January, and it's easy to understand why there are concerns the Foxconn production will be half of normal. At least 40 retail stores have been impacted with delays and closures as people rightly seek protection from the coronavirus.
It's fair to assume this quarter won't crush expectations for Apple. It makes you wonder about names like Yum China (YUMC) , Starbucks (SBUX) , and Nike (NKE) as well, all of whom do quite a bit of business in China. We can work down Apple's supply chain, Apple's competitors (Android will likely feel some impact), and so on and so forth.
But these impacts, unlike the loss of life, are a quarter to quarter phenomena. Losing sales this quarter will likely push them to next quarter especially if it is from potential buyers that are simply staying home rather than buying a competitor's product. I'd posit that food and beverage impacts are greater. Those sales are lost while Apple's are likely delayed.
Based on the weekly chart, as long as the stock holds $300, I believe bulls will be fine. That's where I'd mark my yellow flag or establish a hedge. Should we push over $330, especially while this tragedy remains center stage, then bears should be worried. It marks a price the stock could and should break out with a target of $350.
In conclusion, unless your time frame is the next few days to possibly the next few weeks, the current impact is a one-quarter, temporary negative impact. If the virus spreads and the shutdown continues, then that time frame will lengthen to at least two quarters. For humanity's sake (not Apple's), let's hope the current impact is the worst we'll see and things begin to return to "normal" soon.
(Apple and Starbucks are holdings in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells these stocks? Learn more now.)
