Apple: Is the worst behind?

The stock has moved from over-loved to over-hated and it is now time to accumulate positions.

By TheStockAdvisors Feb 13, 2013 11:11AM
The Apple Inc logo is displayed on the back of the new MacBook Pro David Paul Morris Bloomberg via Getty ImagesBy Nate Pile, Nate's Notes

While it is still too early to officially declare "the worst is behind us," in regards to Apple (AAPL), there are a number of reasons to think the odds are starting to favor such an outlook.

For now, the biggest "clue" to watch out for is that we do not want to see the stock trade below $445. Above that level, long-term investors should take advantage of the opportunity that I believe is currently presenting itself in the marketplace.

First and foremost, I think it is very important to keep in mind that, as frustrating as it has been to watch the stock tumble so sharply in recent weeks, it is actually following "the script" quite nicely in terms of how virtually all stocks behave when they finally transition from being over-loved to over-hated on Wall Street.

Indeed, it is important to remember things get just as overdone on the downside as they do on the upside.

Secondly (and tying in nicely with the above idea), it is also important to keep in mind that the story at Apple is actually still a very good one -- the company just reported record revenue.

For the company's first quarter, Apple reported revenues of $54.5 billion and net income of $13.1 billion, or $13.81 per share, as compared to revenues of $46.3 billion and net income of $13.1 billion, or $13.87 per share, in the same period a year ago.

Meanwhile, the company is sitting on a ton of cash, and, while there are some who are lamenting that Apple will never develop a new product of any sort in the future, the truth is that there is still plenty of innovation going on at the company.

In other words, the price (and direction) of the stock has pretty clearly become separated from the reality of the situation.

There is no doubt that other companies are making some inroads into claiming market share in a number of the product categories that Apple has established over the years.

Nevertheless, it is extremely important to remember that Apple is going to have a far easier time sacrificing some of its insanely high profit margins to steal market share from these competitors at the low end than those competitors will have if they ever want to move up the food chain (or simply hang on to their share at the low end, for that matter, should Apple ever decide to become more aggressive in that space).

And, finally, though there may never be another Steve Jobs, I believe it is also important to keep in mind that a) the folks running Apple "post-Steve" got to learn a great deal from him before his passing; b) they aren't exactly "dummies;" and c) there are so many directions Apple can go next to capitalize on its loyal customer base and still state-of-the-art technology platform.

If you do not yet have a position in Apple, you are encouraged to start one (even if it is only a couple of shares) sooner rather than later.

With an eye towards averaging in to the stock over time rather than buying your entire position all at once, you are now encouraged to start becoming more aggressive. AAPL is now a buy under $550 and a strong buy under $475.

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2Comments
Feb 13, 2013 12:03PM
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It all depends on next quarter earnings and product news. If Apple keeps accumulating $8-10b in profits per quarter and maintains innovation then all's well. If margins slip too much and products stagnate then we'll test $400 PS. Let's see what Nokia nd Samsung bring to the table at MWC 2013 at the end of Feb 2013. and how Microsoft W8 and WP8 devices do in Q1 2013.
Feb 13, 2013 11:33AM
avatar
Apple the WORST IS YET TO COME  !!!
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