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Getting Antsy About Apple?

What to do with Apple (NASDAQ:AAPL) is a question on every tech investor’s mind right now — including me. After all, I’m long AAPL stock and shares are rapidly approaching my entry price. Almost every day I ask myself, “Man, should I get out now before my position goes red?”

Then I take a sip of coffee and move onto other things … because I’ve learned one painful lesson as an investor that is truer than all others: People just trade too freakin’ much. So I’m taking my advice (recently stated here and here) to just relax and keep my hands off the trigger.

But for those of you who simply can’t help themselves, here’s some of the Apple news and numbers I’m looking at:

Cons

  • Short-Term Momentum: Apple stock pushed to a six-month low this week. It’s down more than 25% since mid-September.
  • Technicals: The stock seems to be drawing a textbook head-and-shoulders pattern (this chart from Peter Brandt of TradeNavigator.com). The next significant support seems to be around the $375-$425 level, some 25% below current levels, by most estimates.

  • Earnings Misses: While profits and sales continue to move up, Apple earnings missed expectations in its latest report … even after lowered guidance. It used to be that analysts would call any miss “rare,” but the company fell short of sales and profits earlier in 2012 and also late in 2011. Looks like these quarterly misses are becoming more common.
  • No More “Mystique”: Charles Sizemore and I talked about this in a recent podcast after Apple earnings. The gist: Consumers might not be gaga over high-priced Apple gear anymore now that better-competing technologies exist, and investors are no longer convinced that Apple can do no wrong.
  • Macro Stuff: Oh yeah, and even if Apple wasn’t in trouble specifically, there’s a lot of big-picture stuff weighing on the market — from the recent attacks on Gaza to the eurozone falling back into recession to the threat of mounting layoffs at home in the U.S.

Pros

  • Long-Term Momentum: AAPL stock still is up about 30% year-to-date in 2012. That’s double the market, in case you forgot.
  • Fundamentals: Unlike many other tech companies experiencing trouble growing sales or profits — from PC stocks like dell Dell (NASDAQ:DELL) to mobile competitor Research In Motion (NASDAQ:RIMM) — Apple continues to see great growth. And most importantly, that growth is coming with bigger profits and hefty margins.
  • Dividend: Apple yields more than 2% at this valuation. That’s an OK dividend, but for those folks like me who bought awhile ago, your cost basis boosts that yield even higher. At $400 a share, for instance, your yield is almost 2.7% — the same as oil major Exxon Mobil (NYSE:XOM). Furthermore, Apple’s dividend payout ratio is in the single digits, so there’s ample room to increase that dividend in the near future and for years to come.
  • Valuation: Based on fiscal 2014 forecasts of $56 in earnings, the company has a single-digit price-to-earnings ratio. That’s at the low end of most S&P companies, the low end of the tech sector and the low end of Apple’s historic valuation levels.
  • Holiday Push: It still is worth noting that some of Apple’s recent troubles stem from supply issues, not demand issues. While that’s certainly not ideal, it’s a much easier problem to remedy. If Apple has ironed out the kinks (as many hope) in the intervening months since its earnings miss, the holiday season could be huge.

So that’s that. I am sticking it out with AAPL for the long-term capital gains, the dividend and because I am not a trader. However, if you are looking for a short-term swing trade, there probably are better places to put your money in the next few months than Apple stock.

Related Reading

Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP. As of this writing, he held a long position in Apple but none of the other stocks named here.

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Comments
  • http://www.facebook.com/riecklydia Lydia Rieck

    What brought down the price of aapl this low. I bought aapl at $600.00 I am not sure what to do now. Any comments.

    • JustSaying

      Not to be rude, but what was your strategy when you purchased AAPL at that price? Inevitably share prices fluctuate; presumably your research into the company, its direction, and its leadership balanced out against the risk of short-term drops from AAPL’s relatively high price…
      So were you looking to make a short-term profit, in which case you may have missed that boat, or were you looking to *invest* in a company which you feel has growth in the future?

      Owning shares in individual companies can be boom or bust and the risks should be weighed before one plunks down the cash.

      I suppose it comes down to cashing out now and chalking it up to a learning experience, sitting still and trusting that better days and higher share prices are coming (and then selling when you can walk away with something), or, in the absence of faith in the company, flipping a coin – heads sell, tails wait it out and enjoy the dividends. :)

    • http://twitter.com/JeffReevesIP Jeff Reeves

      I have to echo “JustSaying” below. If you bought at $600 for a swing trade… well, you should have sold at $700. The bleeding will likely not stop in the short-term, either, so you’re SOL.

      If you really bought for long-term capital gains and to get dividends and to ride it until the iPhone 11 or Apple iSpacestation comes out in 2020, then sit back and relax. Apple will be around in 20 years regardless of short-term volatility.

      It’s all about strategy. If your strategy was a long-term investment I think that remains sound (that, by the way, was my strategy when I bought Apple). If your strategy was a swing trade you made a bad trade. The only question now is whether you have a better short-term option to move your money to.

  • d p serr

    Tinkering with the stock market can be like spending the weekend in Vegas – you will either enjoy it and may even win a jackpot or sell your car and go home in a bus. Miss Rieck, it is probably best to cut your losses now and minimize your ulcer pains later. Take the Intel chip for example, it is the highest valued processor chips in the market and it will remain a vital component for many devices. Apple devices are different animals in nature – they are “recipe” products created by a creative visionary.The Apple devices for a time were no more than fashion statements but fashions fades and changes. The visionary aspect of the company has died as we can see in the latest products launching (or lynching). Mr. Reeves believes in holding his AAPLs for 20 years. That is suicidal or simply irresponsible with your investment. Does Apple have a visionary product in the next year or two, excluding changing sizes, colors, and connectors? The answer is NO. If they say, they have one, it is a bluff, and you are back in Vegas playing poker. Apple products have become substitutable cheaper products with so many offerings by its competitors and its competitors are rising in numbers. Since Apple is no longer perceived as a leader in innovation, its future is defined by how it will restructure its product pricing to be competitive in the market and that means less profits. The reality is the market is self-correcting, sadly just like real estate, the market is correcting the over-valuation of the Apple stock and downward spiral will continue until the correct stock price for Apple is reached – consumers will decide that price point. The saving grace is of course introducing a “new” phenomenal product totally different from the current Apple inventory. Back in Vegas, best bet for you cut your losses and sell your AAPL stocks now….

    • http://twitter.com/JeffReevesIP Jeff Reeves

      I love the Vegas analogy. Well said.

      I do, however, have to disagree that a 20-year investment in Apple is irrational based on the dividend alone. An average yield-on-cost of 3.6% across the next two decades returns 100% of your investment right there even if shares nominally go to zero… which, frankly, I think is a bit ludicrous.

      Strangely enough I also own Intel in my personal account though so I take that part as a compliment to my 20-year investment in THAT tech player… and strongly suggest everyone else buy ASAP!

      Read my detailed pitch on Intel here: http://slant.investorplace.com/2012/10/why-i-just-bought-intel-stock-and-why-you-should-too/

  • d p serr

    You are right Mr. Reeves on your response to my humble insights, however, if I were to hold an investment for 20 years I would clear away from Apple if it were the only few stocks available because there is great uncertainty in its ability to diversify its innovation from closed entertainment-based devices. Of what I can foresee today apple’s direction is very limited in the next year or two and speculations for 20 years looks grim I am not sure if they will even have that logo anymore. Where can Apple go if it does not radically diversify or change its philosophy in doing business; it is only becoming a darling of lawyers in patent courts. As it is, I am already frustrated by restrictions Apple places on its products – there is so many things that I should be able to do but cannot like expand its memory, use it as a drive to store movies or any files without having to use ITunes. Did you know the Mac Pros with Retina displays have their internal memory and processors soldered to the circuit board which tells a lot what an owner of the device can or cannot do. Apple’s ownership of the intellectual property ends when I buy the Apple product and I take full ownership. I should have the freedom to modify it to my heart’s content or in extreme example – blow it up if I want to. Going back to Apple stock, if I were to invest my hard earned cash for the long term for 20 years or so I would not stick with Apple but buy precious metals and gold bullion and coins in particular. Yes, there are also pitfalls and risks in owning gold since they can be confiscated by the Feds but the return if all goes well can be astronomical.Gold is inflation-proof even if an economy collapses the value of gold will either stay put or appreciates but never go down. It is the only secure investment one can make…apple that will rot or gold that won’t tarnish…your choice, sir…