Two Foolproof Plays for Apple’s Earnings

Key Points

• Apple stock shares have been trading sideways for the past month. 
• Next week’s earnings are set to jolt it one way or the other. 
• If you’re bullish on the company’s long-term potential, playing the release is simply a question of risk appetite. 

Having led much of the equity rally this year, shares of tech titan Apple Inc NASDAQ: AAPL have taken a hiatus in recent weeks. They managed to tag a fresh all-time high on July 19, but as they head into the final trading day of July on Monday, they're less than $1 higher than where they finished in June. 

It's perhaps not too much of a surprise that buyers have run out of steam, considering the stock's chart is a straight line up from the start of the year. While the benchmark S&P 500 index has managed a return of 20% in the first seven months, Apple shares have given shareholders a 50% rally. Indeed, for much of the first two quarters, Apple shouldered most of the burden on keeping the major indices in positive territory. 

The company will report fiscal third-quarter earnings next week, and one way or another, this will jolt the stock from its summer slumber. But how can investors best prepare and plan? 

Here are two plays to consider for long-term Apple bulls. 

Strong Appetite for Risk

If you've been sitting on the sidelines all year and waiting for an entry into Apple stock that hasn't appeared, buying before the company reports could be a solid, though risky option. The company has a history of beating analyst expectations for its quarterly reports and, more often than not, trades higher in the immediate aftermath. 

Take its fiscal Q2 numbers from May. Both headline numbers were easily beaten, and shares finished up 5% the next day. Looking at what could be in store next week, the Goldman Sachs team expects it to beat the forecasts again, with something like $1.21 in EPS versus the $1.19 consensus and with revenues of $9.4 billion versus perhaps an overly cautious $6.3 billion estimate.  

In a note to investors, analyst Michael Ng pointed out that Goldman's expected upside is due to several factors. These include the ongoing upswing in App Store spending, robust growth in advertising, ongoing content investments in AppleTV and a more favorable foreign exchange impact than what the company itself has forecasted. 

Less Appetite for Risk

With earnings reports, however, there's always the risk of a surprise to the downside, even for stocks with stellar track records like Apple. So one way to mitigate this while still getting involved before the release would be to start with half your target position, then simply add to that at a better price if the stock dips on a negative result or if it rips on another upside beat.  

The alternative is to take a wait-and-see approach. Investors bullish on Apple's long-term option but with less appetite for risk will be more suited to this, as it means staying on the sidelines until the report is released and jumping in. If there's an upside surprise, great. The multi-month trend that has meant Apple is one of the few tech stocks back at all-time highs will continue. If they miss and shares dip, it's also a positive outcome as the long-term outlook remains the same, but you get to be pickier with your entry and likely buy at a lower price.  

Ultimately, no one is looking at Apple to make a quick buck, and there are a lot of other stocks out there more suited to investors with a short-term time horizon. And while some of Apple's tech peers like Alphabet Inc. NASDAQ: GOOGL and Tesla Inc. NASDAQ: TSLA have been receiving downgrades in recent weeks, its "buy" rating has been reiterated by the likes of Jefferies.  

Analyst Andrew Uerkwitz and his team just increased their price target on the stock ahead of next week's release, upping it to $225. From where shares were trading into the weekend, that's pointing to a fresh upside of at least 15%. If you're bullish on the company's long-term potential regardless of the near-term numbers, then you can't go wrong with preparing either of these plays.