How to Play Apple in 2018

Not a day goes by when someone doesn't ask me about what to do about Apple (AAPL).

After all, it is the world largest company. It is the planet's most widely owned stock. Almost everyone uses their products in some form or another.

So the widespread interest is totally understandable.

Apple is a company with which I have a very long relationship. During the early 1980's, I was ordered by Morgan Stanley to take Steve Jobs around to the big New York institutional investors to pitch a secondary share offer for the sole reason that I as one of three people who worked for the firm who was then from California.

They thought one West Coast hippy would easily get along with another. Boy, were they wrong. It was the worst day of my life.

Today, some 200 Apple employees subscribe to the Diary of a Mad Hedge Fund Trader, looking to diversify their substantial holdings. Many own Apple stock with an adjusted cost basis of under $5. Suffice it to say, they all drive really nice Prius's.

So I get a lot of information about the firm far above and beyond the normal effluent of the media and stock analysts. That's why Apple has become a favorite target of my Trade Alerts over the years.

And here is the take: You don't want to touch the stock during the first quarter of 2018.

And here's why. Apple is all about the iPhone, which accounts for 75% of its total earnings. The TV, the watch, the car, iPods, the iMac, and Apple pay are all a waste of time, and consume far more coverage than they are collectively worth.

The good news is that iPhone sales are subject to a fairly reliable cycle. Apple launches a major new iPhone every other fall. The share price peaks shortly after that. The odd years see the introduction of the "S" models. But these are minor upgrades, not generational changes.

So during those in between years, the stock performance is disappointing.

The coming quarter could be especially scary.

Just like you see a big pull back in the tide before a tsunami hits, iPhone sales are flattening out.

Channel checks, however dubious these may be, are already confirming the slowdown of orders for iPhone related semiconductors from suppliers you would expect from such a downturn.

The weakness assures that the current selloff will continue. With any luck, you might be able to pick up shares at a cheap price.

Even with a dip in the current price, it will still be one of the cheapest stocks in the market on a valuation basis. The value players will have no choice to join in, if they're not already there.

But Apple is a much bigger company this time around, and well-established cycles tend to bring in diminishing returns. It's like watching the declining peaks of a bouncing rubber ball.

The bull case for Apple isn't dead, it is just resting.

The China business will continue to grow nicely. Their new lease program promises to deliver a faster upgrade cycle that will allow higher premium prices for their products. That will bring larger profits.

Just thought you'd like to know.