Wall Street hasn’t been this cautious on Apple stock in years. Here’s how to play it

Apple received yet another downgrade this week, the latest in a stream of cautious calls for the world’s largest company. It could present an opportunity for new investors. Redburn Atlantic analysts on Wednesday cut Apple shares to hold from buy , citing limited multiple expansion opportunities and narrow upside in iPhone sales. And Redburn is far from alone: Only 57% of analysts covering Apple have a buy-equivalent rating on shares, according to FactSet data. That number hasn’t been below 60% since July 2020 when analysts were concerned about growth during the first year of the pandemic. Notably, only 9% of analysts are in the outright sell camp. The roughly 34% who deem Apple a hold appear to be looking for consolidation, or a chance for earnings to catch up with shares after a very strong 2023 performance. Apple jumped around 48% last year during a monstrous run in the tech sector. Cautious calls in 2024 Here’s a breakdown of four other cautious Apple calls that pressured shares and contributed to just two positive sessions for Apple in the past eight. Barclays downgraded Apple to underweight (sell) from hold on Jan. 2 — the first trading day of 2024. Analysts at the bank argued that Hardware sales remain weak, while Services growth fails to exceed 10%. Barclays slightly lowered their price target for the stock to $160 per share from $161 apiece, saying the current valuation is stretched. “Given we believe numbers will not be moving higher, we see P/E multiple pressure going into the new year,” analysts wrote in the research note. Apple shares dropped more than 3.5% that day. Piper Sandler followed suit on Jan. 4, downgrading Apple shares to neutral from buy. The firm lowered its price target to $205 from $220 apiece, citing “valuation concerns and broader handset and macro weakness in 1H24.” The stock — already on a three-session losing streak at the time — dropped for a fourth day in a row. Bernstein on Monday reaffirmed its hold rating and reiterated its Apple price target of $195 apiece. Analysts noted that shares are deserving of a premium multiple, but the “valuation looks elevated compared to consumer comps that are also high quality but potentially face less disruption risk.” Bank of America on Tuesday stayed in the hold camp. Analysts reiterated their Apple target price of $208 apiece, adding that “positive catalysts of new product introduction and stable iPhones are offset by a potentially weaker consumer spending environment.” Good time to own Apple Most of the wary analysts in 2024 are taking issue with Apple’s valuation. Shares have been trading above their five-year average forward price-to-earnings multiple. It’s a factor we recently highlighted in a separate commentary. However, history shows that when many analysts on the Street step to the sidelines on Apple, it’s a good time to have some exposure. What if the Vision Pro mixed reality headset is a bigger success than folks think — and, in turn, results in upside to Services revenue in 2024 versus current estimates? What if Siri gets a generative artificial intelligence upgrade and makes the Apple ecosystem even stronger than it already is? The big question for investors is, of course, now what? We sold some shares of Apple and downgraded the name to a 2 rating back on Jan. 2. That, however, doesn’t change our “own it, don’t trade it” mantra around Apple. Jim Cramer said it best following the sale: “No one ever got hurt taking a profit.” “These darned [Magnificent Seven] companies are so good,” Jim added at the time. “They always seem to come up with something that makes them more compelling than we thought.” “That’s the definition of a good investment, as long as you do some trimming after a big gain,” he stressed. Discipline trumps conviction. What do we mean by this? In this case, discipline is locking in profits and not letting a position grow too large, and conviction is “own it, don’t trade it.” In the end, we want to run a diversified portfolio that can perform well in a myriad of market conditions — not an Apple fund. While our 2 rating does put us in the hold camp, the stock is really interesting here for those who don’t own any shares in this best-in-class company. That may sound like we’re talking out of both sides of our mouths — but with all things investing, there is nuance and everyone’s situation is different. With a greater than 5% weighting for Apple in the portfolio and a low cost basis, we need to see a much bigger pullback before considering adding to our position. If that sell-off never comes, our current exposure is already large enough for us to benefit and maintain a diversified portfolio. Further gains in Apple stock, even if we don’t buy more, will boost our exposure within our portfolio. For investors who don’t own Apple, there may be an opportunity to get that small starter position. That way, if we don’t get a larger pullback, you’ve got something on, you’re making money to the upside and you’ve hedged against any risk of feeling that FOMO (fear of missing out) should shares rally back to all-time highs. Actionable takeaways The goal is to determine how investors who own no Apple should go about gaining exposure now — before the stock goes back to record highs, which are less than 6.5% from current levels around $186. If you already own some Apple shares you should consider your cost basis and last buy when thinking about increasing. After all, the goal with subsequent buys should be to reduce your overall cost basis. If you don’t have any exposure, the first price level to watch would be something around $181 per share. Why $181? This represents the 200-day moving average. A level that has proven to be support for the stock since Feb. 2. We’ve seen a couple of instances since then when Apple stock broke below, but only briefly, never more than a week or so as seen on the following chart. While we don’t dwell too heavily on technical analysis at the Club, the 200-day average is a big one that many investors, traders, and technical analysts alike use. So, when a name we love for fundamental reasons (and that’s the key — we wouldn’t even bother to look at the chart if we don’t already love the stock) gets to that key level, it’s worth considering this technical metric, especially if the trade is an initial buy or helpful in reducing your overall cost basis. Back in October, we went into more detail on how technical analysts can inform buy and sell decisions. In this case, the $181 level also represents a roughly 10% (meaning a correction territory) pullback from the all-time high of $199.62 reached on Dec.14, 2023. Also, note those three peaks around $180 back in 2021 and 2022. That was a level of resistance back then. As we’ve noted before, resistance once broken is viewed as support, and support once broken is viewed as resistance. It’s known as the principle of polarity in technical analysis. This is clearly a key battleground level — but with shares trading above it and also representing the 200-day, the move now is to look for support at these levels. So, for an initial buy, it could be a good starting price. The next level of interest based on the chart would be somewhere around that $165 to $175 level, call it $170. As we can see in the chart above, we put in three bottoms around there prior to the rally that saw a new all-time high. If you’re stepping in at $181, then you probably want to wait and see if we get a move to the mid-to-lower bound of this region for a second buy — as again, the goal with all buys after to the first one is to reduce your overall cost basis. The thing to keep in mind, however, is if we get to this level, then we’ve broken below the 200-day moving average putting us somewhat in no man’s land. Put another way, no need to make a “statement buy.” You can look to reduce your basis but don’t look to be a hero as lower levels certainly come into play. From there, we’re looking at something around $160, which is notable because it would put the stock at its five-year average P/E multiple (around 24.2 times) based on calendar year 2024 earnings estimates of $6.70 per share. That $160 level would also imply a 20% decline from that all-time high (bear market territory for the stock). It’s also the level that Barclays, one of the more bearish firms of note, cut its price target to as part of its early January downgrade to a sell-equivalent rating. Bottom line When so many analysts move to the sidelines on Apple, it’s historically been a good time to buy the stock. We think per-share prices of $181, $170, and $160 are key levels to watch for investors who don’t own shares of Apple and want to get in — or for those who could lower their cost basis. Of course, we can’t simply latch onto these prices. If they are reached, we will need to consider if anything has changed fundamentally. We will both update members should anything like that occur and likely look to update our rating if we get any of those lows without a good fundamental reason. (Jim Cramer’s Charitable Trust is long AAPL. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . 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