Apple’s massive bond portfolio makes it a ‘screaming sell,’ says market watcher

Apple is on track for its best week in more than a year. Even a plucky comeback isn't enough for this market watcher to back the stock.

"It's a screaming sell here," Larry McDonald, founder of the Bear Traps Report, told CNBC's "Trading Nation" on Thursday.

One major issue? Its billions of dollars in corporate bonds that could be the albatross around its neck as interest rates rise.

"Keep in mind Apple has one of the largest bond portfolios on the planet Earth," said McDonald. "Apple's bond portfolio is bigger than many mutual funds."

Apple has docked a large chunk of its overseas cash in corporate securities in recent years as it avoided repatriation. By the end of December, the world's largest company held $157 billion in corporate securities with most of that likely in fixed income instruments, up from $153 billion in September. As bond prices fall, and yields rise, those holdings become less valuable.

Bond prices have been steadily in decline since the beginning of the year as inflation pressures increased and the chance of a more ready-to-move Federal Reserve grew more likely. At least 3 hikes to the fed funds rate are expected this year, one as soon as March, according to CME Group fed funds futures.

McDonald also advises waiting for a pullback to more reasonable levels before buying Apple. At its current levels, he says, it "makes no sense."

"The way I trade Apple over the years is every 18 months or so Apple goes on sale," he said. "You have to wait for that moment for Apple. You can't chase Apple up at $900 billion market cap."

Apple has held onto the title of world's largest company for years — it currently has a market cap of around $876 billion. Alphabet is the second-largest company with a market cap of $755 billion.

Apple did see some weakness earlier in the year and briefly dipped into a correction, a level that represents a 10 percent drop from 52-week highs. However, its shares still remain near a record of $180 a share set on Jan. 18. Its relative strength index, a measure of how overbought the stock is, sits at 57.7 on Thursday, above the S&P 500's 50 level.

Phil Streible, senior market strategist at RJO Futures, agrees that Apple has too much risk to be deemed a buy, but harbors different concerns.

"Apple could face a lot of headwinds," Streible told "Trading Nation." "It's just too much company-specific risk."

One fear, says Streible, is the potential for a protracted lawsuit tied to its admission of slowing older iPhone models. Dozens of lawsuits have been filed against Apple over a software update that affected iPhone battery life. However, Apple did say it had never intentionally shortened the life of its products.

Apple shares have been on a run this week. Its stock has added more than 1 percent in every session of the past four days as it works to reverse losses sustained in last week's sell-off. In the week so far, shares have added nearly 11 percent, its best one-week performance since September 2016. It was down slightly in Friday's premarket.

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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

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