Thinking About Selling on the News for Apple's Earnings Report

01/13/2015 5:37 pm EST

Focus: STOCKS

Jim Jubak

Founder and Editor, JubakPicks.com

Even though this tech monster doesn't report earnings for the December 2014 quarter (the company's best quarter every year, by far) until the end of January, MoneyShow's Jim Jubak doesn't think it's too early to start thinking about selling on the news.

Apple (AAPL) doesn't report earnings for the December 2014 quarter (the first quarter of the company's 2015 fiscal year) until January 27, but it's not too early to begin to think about selling Apple shares on the news.

A decision to turn that thought into action will depend on whether Apple shares soar in the next couple of weeks on the possibility of a blow out December quarter.

Apple shares—like much of the US market—have had a volatile few months. Shares bottomed on October 16 at $96.26 as part of that month's general market selloff. They rallied to $119 by November 26 and then fell again on the retreat at the beginning of 2015 to $106.05. Since then, they've been on an upswing. The shares closed at $112.07, a gain of 5.5% from January 5, on Friday, January 9.

Apple shares typically rally in anticipation of December quarter results because the December quarter is—by far—the company's best quarter year in and year out. In 2012, for example, revenue in the December quarter of $54.5 billion was well ahead of September quarter revenue of $36 billion or March 2013 revenue of $43.6 billion. In 2013, December revenue was $57.6 billion versus September revenue of $37.5 billion and March 2014 revenue of $45.6 billion.

For December 2014, Wall Street analysts were projecting revenue of $66.2 billion after September revenue of $42.1 billion. That estimate is above Apple's own guidance of $63.5 to $66.5 billion.

But there are strong signs recently that Apple could better than that quarterly surge as the iPhone 6 and iPhone 6 Plus models that started rolling out globally claw back huge chunks of market share from Samsung.

For example, reports coming in from China show Apple picking up smartphone market share big time in that market. (So much so that iPhone sales in China could exceed iPhone sales in the United States in the quarter.) 

The market share gains in China are part of a pattern that saw Apple reclaim huge hunks of market share for the iPhone from Samsung in particular and Android phones in general with the release of the iPhone 6 Plus, Apple's first entrant in the large-form phablet market. In the three months ending in November, Apple picked up share in the United States and in almost all European markets, according to Kantar Worldpanel. In the US market, for example, Apple accounted for nearly half of all smartphones sold in September through November.  In China, Apple increased its share of the smartphone market to 18%.

This has led to the kind of race to the top among Wall Street analysts that can lead to big share price gains before a quarterly earnings report. Citigroup projects that Apple sold 62 million iPhone 6 and iPhone 6 Plus units in the December quarter. Morgan Stanley says 67 million. UBS has put sales at 69.3 million units.

We're also seeing the kind of secondary positive stories that can build momentum for a stock as it gets close to an earnings report. For example, on January 8, Apple announced new record billings from its App store for the first week of January. That just draws attention to the amazing year that Apple's App Store racked up in 2014 with billings up a record-breaking 50% for the year.

Now maybe none of this will pop Apple shares enough to make a sell, on or before the news, trade attractive. The financial markets have a lot of macro news on their minds-oil, Greece and the euro, China growth-that may make it hard for Apple to rally ahead of earnings. I'd like to see a return to the November high of $119—at a minimum—before saying this is a sell I need to make. A move of 10% in the days before the January 27 report would get my attention as would another round of higher target prices from Wall Street analysts.

Wait and see time. But definitely worth monitoring.

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