This column is my opinion and expresses my views. Those views can change at a moments notice when the market changes. I am not right all the time and I do not expect to be. I disclose all my positions clearly listed on the page, and I do not trade my account on the stocks spoken of in this column unless fully disclosed. If that does not work for you stop reading and close the page. Do not bother me or harass me.
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Apple’s Stock May Rise, While Micron, AMD, Banks See More Losses
MICHAEL KRAMER AND THE CLIENTS OF MOTT CAPITAL OWN SHARES OF AAPL
The S&P 500 is back above 2,900 and was up by 50 basis points on Thursday. It was a solid showing for the index, and at this point, the narrative continues to be bullish, pointing to higher equity prices.
Apple was a big reason for that rise. Shares of the iPhone maker rose by more than 2.5 percent to roughly $226. 41. An interesting thing happened when the stock hit resistance on the uptrend. Shares stopped rising and dipped a bit. I don’t think it is a sign of a stock that is topping out; I think it merely means the stock’s path may be shifting, and that should result in the stock rising at a slower pace. Which is likely more sustainable.
Analysts have already started to up their revenue estimates for the company for fiscal 2019. Revenue estimates rise to $278.8 billion from $276 billion. Not a huge increase, but I expect it will only continue to rise. Especially with the price of the new phone higher than the previous generation of phones. A big part of Apple’s growth this past year has been through the average selling price going higher.
I think this cycle may be different, with the addition of the X Max and XR. The bigger size screen on the X Max will be enough to get some people off the fence who have held on to an iPhone 7 + or 8 +. Additionally, the XR may be enough to get people hanging to 6 and 7’s to upgrade as well. But we will see.
Make no mistake, a big part of Apple’s stock rising in the future will hinge on the company’s ability to grow its services business, and the market giving the stock a higher multiple for that services growth.
Micron’s stock got a significant bounce today, but I think that is all it may be. Analysts are continuing to turn more bearish on this stock. The average price target on the stock is now starting to fall and is down to $77.50. I suspect it falls further as well. Earnings for the company are on September 20. That means we likely see more estimate and price target adjustments next week. EPS estimates of next year have already dropped from $11.63 to $11.42. Meanwhile 2020 fall to $10.03 from $10.22.
$45.25 is now resistance. It will be something to watch tomorrow.
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What happened to AMD? It is a good question. It looks like the stock may have peaked. The RSI is well overbought, at 86. It also doesn’t help that stock hit a resistance level from back in the year 2003. This stock has a history of epic rises, followed by disastrous collapses. The current cycle doesn’t look all that different from the previous episodes.
I’m sure there will be plenty of readers screaming, this guy knows nothing, it is different this time, what does this hack know, he was bearish on AMD at 9. Well, yes I was bearish 9. But I have also been bullish at different points as well. Although my calls on AMD have not been some of my best calls, I have even gotten them right sometimes as well. Such as when the stock was around $19, and I said it was going to $24.
My only advice is that a good part of this recent rise is a short squeeze. There was literally a record number of people short this stock. You can see in the chart below that when short interest started to drop, AMD’s stock price began to rise. My guess is a lot those that were short have now covered.
Additionally, that also means some may be shorting the stock again. We will see what happens. All I can say from personal experience is whatever decision you choose to make, understand why you are making, and be ready for when the worst case scenario plays out.
Moving on then. Another group of stocks that people seem to have a passion for that I can’t understand is the banks. The buybacks, the dividend hikes, the banks are so great, the banks will rise, geez. I don’t see what the fascination is with the banks. The yield curve keeps flattening; earnings will slow next year. I know, the stocks are cheap, right? They trade 9 and 10 times next years results. Well, Gilead and IBM are cheap too, and what have their shares done? Just because a stock has a low multiple doesn’t mean its cheap. It just says that market doesn’t see earnings worth paying a premium for. If the banks were so cheap as some think, the stocks would be trading at 15 or 16 times earnings, not a 9. For all the buybacks, shares aren’t rising, and that should be a concern. Sure their earnings will increase because the number of shares is falling. But that doesn’t mean it worth paying a premium for. The growth rates are falling too, and that means the premium ones pays for them falls as well. Ask IBM and Gilead.
The banks are rolling over again. The KBW Bank index is down about 5 percent in the past five days, while the S&P 500 is up 1 percent. The BKX looks like it is heading to 104.
See out latest subscriber video talking about the Bank Stock Declines Just Starting
Wells Fargo is likely heading towards $52.
$220 is looking more likely on Goldman.
Michael Kramer is the Founder of Mott Capital and the creator of Reading the Markets.