Among Jim Cramer’s many famous phrases, his phrases are: apple often stand out: own it. Do not trade.
This quote speaks to the company’s persevering ability to overcome any obstacles, whether it’s concerns about new products or concerns about the global economy. The tech giant recently surpassed $5 trillion for the first time, closing in on Nvidia as the world’s most valuable company. There is potential for even more profit.
Apple recently said demand for its long-awaited foldable iPhone, the iPhone Duo, was “not extraordinary” after pre-orders began last Friday. Demand was so high that within minutes of receiving the order, the estimated delivery date was pushed back to late January (enough days to fill inventory). Combine this with the company’s new smart hub, Homeview, new MacBook Pro models and iPads with OLED displays, and the Mac Studio and related chips released a few weeks ago, and the hardware landscape of the most successful consumer electronics company in history is starting to compete with AI deals for investor attention. The only problem is that the company’s valuation already has a lot of good news built into it.
Adding to this hardware momentum is a software catalyst. Tight integration of Apple intelligence, including upgraded Siri AI and visual intelligence, means Apple is becoming part of the AI story, with many companies using all of their organic cash flow (Amazon, Alphabet) or significantly more than organic cash flow (Oracle), with the benefit of a relative lack of large capital expenditures that may worry investors who are concerned about frothy AI deals. Apple’s projected revenue for fiscal year 2027 is over $500 billion. Although expected EBITDA is over $180 billion, the company’s capital expenditures are only $13.5 billion, which is tiny compared to other megacaps. result? Free cash flow is expected to be $156 billion, and the company reported net cash of about $62 billion in its earnings report for the quarter ended June 27.
Apple since the beginning of the year
The main headwind for AAPL is valuation. Apple, with a market capitalization of $5 trillion, is fighting the law of large numbers. Transformation at this scale requires massive revenue generation, and that is becoming increasingly difficult to design. This is especially true since the stock price is already quite expensive. AAPL trades at nearly 36x estimated FY27 EPS and 9.59x, significantly higher than its long-term average multiple. Apple’s options prices are also above average, which could be good news since the rise in short-term premiums could help fund long-term options purchases. This could be a great opportunity to reverse call spread risk, as Apple has been buoyed by an impressive string of recent product releases and massive free cash flow, but is likely held back by high valuations.
trade
Selling the short-dated December 310 put and December 375 call offsets the cost of buying the long-dated February call. Ideally, we’d like Apple stock to stay in between the two, maintain a short strike by the December expiration, and rise above $360 by the February expiration. One thing to note. By selling a put on the downside, you can secure some margin, so you may have a chance to buy the stock when the put is exercised before the expiration date.
If AAPL chops sideways as it burns through its valuation, the short strangles will expire worthless, reducing the cost basis of the longs.
Disclosure: Tidal owns/holds all securities mentioned in the article.
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This content is provided for informational purposes only and does not constitute financial, investment, tax, or legal advice or a recommendation to purchase any security or other financial asset. The content is general in nature and does not reflect your unique personal circumstances. The above may not be appropriate for your particular situation. Before making any financial decisions, you should strongly consider seeking the advice of your own financial or investment advisor.
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