History Says: Buy Apple Stock Before Earnings

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The date has been set: on Tuesday, July 27, Apple will release its fiscal third quarter results. The report tends to come out around 4:30 p.m. EST, and the conference call is scheduled to start half an hour later. The Apple Maven will cover the results and earnings discussions in real time, via live blog.

Today, we turn to Apple stock  (AAPL) – Get Report and its returns around earnings day. While history does not always repeat, it can provide investors with a clue on what to do ahead of earnings season.

Figure 1: Earnings season pannel.

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(Read more from the Apple Maven: Could The iPad Be Apple’s Best Performer in Fiscal Q3?)

History says: buy Apple

The chart below depicts the median two-week return in Apple stock over the past 20 quarters. The first bar shows that, contrary to typical “buy the rumor, sell the news” behavior, AAPL has produced lower returns than average in the two weeks prior to earnings day: 1.1%.

We currently stand two and a half weeks ahead of Apple’s fiscal third quarter date. Therefore, should history repeat, shares may start to underperform some time soon, and the period of lagging returns could last another ten trading days or so.

Figure 2: Median 2-week returns, earnings vs. non-earnings.

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But earnings day tends to provide a boost to Apple shares – and quite a bit of it. The second column above shows that AAPL has seen its stock price rise nearly 5% in only two weeks, at the median, following the company’s earnings report.

The catch here is that the range of outcomes in post-earnings returns has been wide. This time last year, when Apple traded very much like a meme stock on the heels of the announced 4-to-1 stock split, shares skyrocketed: 20% in two weeks (and another 17% to the early September peak). On the downside, two-week returns have been as bad as a loss of nearly 14%.

Consider other factors

To be clear, relying on historical price action alone is not a good investment or trading strategy. If it were, the roadmap would be simple: hold off on buying AAPL until earnings day, then pull the trigger just before the earnings release crosses the wire.

But I believe that other factors should be considered as well. Long-term investors, for example, should spend some time thinking through the business fundamentals, to determine if the investment thesis holds water; and valuations, to understand if the risk-reward equation is favorable.

On the timing of the investment, earnings season is only one piece of the puzzle. I also think that other factors could play a role, all of which seem to favor an investment in Apple stock today:

  • Yields have pulled back and remained well off the 2021 highs – which is good news for growth and tech stocks. And on the couple of days that interest rates spiked the most recently (Fed Day and Friday, July 9), AAPL displayed resilience by climbing against the odds.
  • Markets have been tamed lately, with volatility having dropped to a post-pandemic low. When jitters subside, fundamentals tend to prevail. If “left alone”, I think that Apple is more likely to outperform the broad equities market.
  • Another interesting historical trend has been seasonality. The graph below shows that July and August have been Apple’s best months of outperformance against the S&P 500 in the past ten years – likely due to anticipation for the new iPhone and shopping season. So far this month, history has predicted price movements well.

Figure 3: Average monthly returns vs. S&P 500 (seasonality).

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(Read more from the Apple Maven: Apple Stock: Jim Cramer Is Right About The Winners)

Twitter speaks

I have recently asked Twitter for an opinion: aside from the iPad, what other segment is most likely to outshine this quarter? Below are the responses.

Explore more data and graphs

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(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting The Apple Maven)

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