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Stock Market Today: Indexes Down, Banks Break Out; When Will Apple’s Growth Moderate? | Stock News & Stock Market Analysis

Major stock indexes were slightly lower near midday Wednesday on the eve of the Thanksgiving holiday, but Apple (AAPL) continued to warm investors’ hearts as it recouped more of its moderate losses seen over the prior week and a half. Shares rose nearly 1% to 174.36 in active trading.

That extends Apple’s gain from its latest breakout from a new cup with handle at 160.97 to 8%, so it’s out of the proper buy zone for now. The 5% chase zone goes up to 169.02.

XAutoplay: On | OffMeanwhile, banking shares continued to show good action this quarter, with a new breakout coming from New England-based Meridian Bancorp (EBSB). Shares bolted more than 2% higher to 20.42, rising past a 20.25 buy point in a long cup with handle.

Meridian is a thinly traded small cap with an average daily volume of 181,000 shares over the past 50 sessions.

At 1 pm ET in New York, the Nasdaq edged less than 1 point lower, keeping virtually all of Tuesday’s solid 1.1% advance. At 6864, the tech-rich composite index holds a 5.7% gain since Oct. 1.

The S&P 500 eased nearly 0.1%, and the Dow Jones industrial average is off 0.2%. Small caps fell by a similar amount, with the S&P SmallCap 600 down 0.1%.

Volume was running sharply lower vs. the same time Tuesday on both main exchanges. The stock market will be closed Thursday and open until 1 p.m. ET on Friday.

Apple has done very well for long-view-minded investors over the past year. As repeatedly noted in IBD’s Stock Market Today column late last year and early in 2017, the iPhone, iPad and digital services titan broke out of a first-stage cup-with-handle base on Jan. 6-9, rising past a 118.12 buy point.

Volume came in a little higher than normal in a few up days over the next three weeks, then gushed higher on Feb. 1 after Apple reported a solid turnaround in quarterly results (fiscal Q4 profit up 2% to $3.36 a share, halting a three-quarter streak of year-over-year losses, and revenue up 3%).

The gain from that first-stage bottoming base has now reached 49% to a new all-time high of 176.24.

Apple has certainly delivered on the fundamentals over that period. Growth has accelerated. After that 2% rise in earnings, Apple has posted EPS increases of 11%, 18% and 24% on revenue gains of 5%, 7% and 12%. Growth is expected to continue accelerating.

While no sell signals have triggered for investors who bought on the January breakout or have even larger capital gains, Apple at one point will be vulnerable to a correction, just like the greater market itself. When this occurs, expect the megacap tech to test support at its long-term 200-day moving average, currently near 152.

A big collapse through that 200-day line would likely mean that a significant new base-building period is in the works. See the 200-day moving average painted in black on a MarketSmith daily chart. The 200-day line tracks the average closing price for a stock over the past 200 trading sessions, or roughly equivalent to 10 months. A rising 200-day line means the overall long-term price trend is up.

While institutions are clearly bullish about the current fundamentals in Apple, some are expressing concern over the company’s ability to keep raising the cash payout.

Alex Crooke, head of global equity and income strategies at Janus Henderson, notes that Apple likely has had to raise debt in order to pay the dividend since the company is not making any move to repatriate profits from overseas businesses. Indeed, long-term debt vs. shareholder equity has gone up to a still manageable 73% in FY 2017 (ended in September) vs. 45% in FY 2015.

“The margins might stay up, but the (dividend and profit) growth rate may moderate,” Crooke told IBD, adding that he sees some limitations in the volume sales for the latest iPhone X, which can cost more than $1,000 per handset.

The Street sees strong growth in FY 2018 (ending in September), with earnings jumping 24% to $11.44 a share on a 20% leap in sales to $274.3 billion. A 24% EPS pickup would be the strongest increase since a 43% bulge to $9.22 a share in FY 2015.

For FY 2019, the estimates are 5% EPS growth and 2% revenue growth, but keep in mind that Wall Street analysts tend to be very conservative with forecasts that far out into the future.

Crooke manages the Bankers Investment Trust, a closed-end fund started in 1888 and currently traded on the London Stock Exchange. The fund is on track to achieve 51 years in a row of increasing dividends paid to fund holders. Apple was the second largest holding in the $1.2 billion fund, according to data as of Oct. 31. Total return over the past five years is 123.3%.

Apple paid a quarterly cash dividend of 63 cents a share on Nov. 16. The stock has a 1.5% annualized yield, below the 1.9% yield for the S&P 500.

On IBD Stock Checkup, the SMR Rating for Apple is currently at a top-notch A on a scale of A to E and signifies leadership in terms of sales, profit margins, and return on equity.

Strength In The Banking Sector

Going back to Meridian, the handle in Meridian’s base began with a decline on Oct. 27, and the 7.2% correction within the handle portion is normal for a good cup with handle pattern.

The operator of savings and loans in three counties of Massachusetts boasts a top-notch 99 Earnings Per Share Rating in IBD Stock Checkup. Earnings per share have risen 64%, 69%, 29%, 100% and 39% vs. year-ago levels in the past five quarters.

Other banks acting well lately include Bank of America (BAC) and JPMorgan Chase (JPM), both of which recently found buyers during the latest pullback to the 50-day moving average.

BofA is in the proper buy zone since clearing a 25.90 buy point in a seven-month-long flat base. That flat base may also be interpreted as a shallow saucer base.

The stock is trading flat on Wednesday at 26.67, up nearly 3% from the proper entry.

The 5% chase zone for BofA goes up to 27.20.

The money center bank is expected to grow fourth-quarter profit by 20% to 48 cents a share. That would mark a second straight quarter of acceleration following EPS gains of 12% and 17% in the prior two quarters.

Q4 revenue is seen slipping 3% to $21.96 billion.

B of A’s Composite Rating on Stock Checkup is a respectable 82 given that the bank is continuing a turnaround in fundamentals.

JPMorgan, at 98.82, has climbed modestly since clearing a 95.32 base-on-base buy point in late September.

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