High-tech hubris

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Apple Still Is a Value Trap

Not much has changed at Apple (NASDAQ:AAPL) in about three months. After the tech stock quickly plummeted from $705 to the low $400s, it has floated between $420 and $470, but neither the bulls nor the bears can get the upper hand.

The Apple bulls point to a single-digit P/E for AAPL stock, major market share for the iPad, trouble with supply and not demand — to say nothing of the longer-term potential of a 2.5% Apple dividend that’s overdue for an increase, $140 billion in cash to burn and hopes of continued buybacks. I mean, 16% earnings growth in 2013 isn’t good enough for you?

The Apple bears, on the other hand, point to a classic sentiment shift in a momentum stock. Earnings multiples for AAPL don’t matter since forecasts keep moving down and margins are shrinking. The technicals are ugly now that the stock has once again plunged below its 50-day moving average after last week’s drop. Earnings on the horizon are sure to disappoint again, since investors can’t come to grips with reality: Expectations are too high and the actual growth is slowing down.

Then you have the gadget geeks who care less about the business and are more interested in iPad vs. the Amazon (NASDAQ:AMZN) Kindle, the iPhone vs. the new Z10 from BlackBerry (NASDAQ:BBRY), or the latest Nexus device from Google (NASDAQ:GOOG).

So here’s the thing: All parties involved have valid points. The momentum is ugly, the underlying fundamentals scream stability and the device line remains very profitable and in demand.

That’s what makes Apple stock just too hot to handle right now unless you’re willing to trade on sentiment for a swing trade.

About a month ago, I wrote that investors shouldn’t pick Apple until the fall. In addition to all the conflicting outlooks on the stock itself right now, there is an overall feeling that the market is at an inflection point — either we are about to break out to considerably higher highs, or a “correction” is due.

If you feel like you’re smart enough (or lucky enough) to pick momentum correctly, then feel free. But I’m sitting this one out.

Those who want to swing trade Apple should note that the stock tends to be moving in a range of about $420 to $470 — and right now, shares are at the low end of that channel, right on par with the $425 target that Wall Street icon Jeff Gundlach called for in November. There’s a chance we could see a temporary break lower, of course, but there seems to be a floor here if you think you might make a quick 10% on a run back to $470.

But be careful, since Gundlach has a new target of $300 and one of the oldest Apple bears is looking for $270.

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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 did not own a position in any of the stocks named here.

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