The big question

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Is Apple Stock a Buy?

Well, another week goes by, and another big move takes place for Apple (NASDAQ:AAPL).

Shares have rallied in the wake of Apple’s earnings report, when we found out both the top and bottom line beat estimates in Q2. Apple stock is up about 10% since that April 23 announcement.

But this came amid the first profit decline at Apple in more than a decade thanks to predictably shrinking margins.

Earnings were the typical good-news/bad-news scene that has been so common for Apple — which only adds to investor confusion. Is Google (NASDAQ:GOOG) Android really converting iPhone and iPad users, or are gadgets like the Amazon (NASDAQ:AMZN) just competing on cost?

Is Apple a great long-term buy thanks to massive cash stockpiles and reliable cash flow, or are we seeing a company paralyzed by unrealistic expectations and a failure to continue its track record of innovation?

Will BlackBerry (NASDAQ:BBRY) phones eat up enterprise sales — or, for that matter, will Microsoft (NASDAQ:MSFT) Surface tablets — or can AAPL figure out how to woo corporate IT geeks?

These are just a few questions that investors have on their minds when debating the merits of Apple stock. Here are a few more issues worth noting:

Quality Control: Apple took some heat recently for sending as many as 8 million subpar iPhones back to Foxconn. This is news not just because of the sheer size of the shipment and because of previous concerns that Apple was suffering from a production bottleneck for the iPhone 5, but because it smacks of the “un-Jobsness” that some fear has crept into AAPL. The Apple Maps debacle and other high-profile missteps could be a cause for concern if the biggest selling point for Apple is its premium interface that is so user-friendly.

iBonds: Apple has $140 billion in cash and investments, so it hardly needs to beg for spare change. But with debt so cheap, the company decided to float a $17 billion bond offering to fund an ambitious share repurchase plan and dividend scheme to return $100 billion in capital to shareholders by 2015. The move is very shrewd; consider AAPL got 30-year debt at just 3.883% and 10-year debt at 2.415%. Both of those rates are only marginally above current inflation levels … so it’s almost “free money” for Apple to play with.

Price Cuts: Apple just reduced the prices on its iPads, which has many speculating that a new line of devices is due out this summer. Similarly, there are rumors that a cheap iPhone will hit the market this year. This strategy of attacking the lower-end market flies in the face of previous Apple strategy that involves premium devices for premium prices … but since AAPL is already losing the war on margins, it appears the company is prepared to play the volume game now instead. That’s a different animal and could go either way for Apple.

So how does all this add up?

Well, I think a long-term investment in Apple might serve you well from an income perspective. AAPL’s dividend yield is around 2.8% after the recent increase, and it is difficult to imagine the company slashing or eliminating that payout anytime soon. However, the growth picture is pretty grim, and I doubt Apple has much momentum when it comes to growing earnings or sales. That means share prices will stay pretty flat or track the market.

As such, I don’t see a compelling reason to buy Apple — especially after the stock’s recent pop. Anything around $400 might be a decent entry price for Apple, since I wouldn’t be surprised to see it set a new 52-week low sometime this summer if bad news and a bad market conspire to hold AAPL back.

In short, shop around and don’t grab at Apple unless shares roll back. It might be a decent long-term investment … but it’s going nowhere in the short-term, and the future remains too uncertain to go stock-chasing right now.

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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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Comments
  • karenopenshaw

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  • Topper

    Apple actually has 147 billion, not 140, but what’s 7 billion give or take for you guys. Probably more than most other companies are worth, but lets not quibble over your main point…..which is what again?

    That Apple sent back sub par I Phones is not a condition of “un-jobness”,
    someone you guys never appreciated or understood until apparently now. It is a condition of management doing the right thing. Demanding excellence from its manufacturing and assembly partners. If only Honda, Toyota and many other companies would do the same we’d all be able to purchase products, like Apple’s, with confidence. That is “jobness”.

    Apple’s dividend yield is 3.05%, but again, it’s just a number. 2.8, 3.0, 2.1…..what do you care. If it doesn’t support your point of view, fake it, or guess.

    “Apple is losing the war on margins”? Have you ever manufactured anything? Apple’s margins could decline to 30% or less and still be making a killing in the market. Grab a calculator and tell me what 30% of $200 billion is. Again, probably more than any other company is worth. You guys have been complaining they don’t have a strategy or product for the Chinese market. If they do introduce lower margin products, like the rumored phone for China, you give us a damned if they do, damned if they don’t argument. Stop. Take a breath. Relax. Now, think. Apple sold $8.8 billion dollars in China LAST QUARTER ! The question shouldn’t be when or if they’re going to produce a cheaper phone. The question should be why? Did I forget to mention they sold $8.8 billion in China LAST QUARTER ! These are monster numbers. For any company. Selling anything. Anywhere.

    You say their “growth picture is pretty slim”? Seriously? Sales are up 30% in China (see above). Also, I’ve heard that argument before. In 2008. In 2009. In 2010. In 2011. Last year, and now again. Perhaps you’re right this time. Keep trying, one day you’re bound to be right, but the problem is you have no evidence of that, other than the comment from management about growth opportunities IN OTHER CATEGORIES.That makes your statement if not irresponsible, at least irrelevant. So why make it? I agree that at a certain point it would be difficult for a company to create a gazillion dollars per quarter, so the laws of infinite expansion will ultimately have to apply. I think the point most people are missing applies here to Apple. We’re talking billions and billions and billions of dollars…. consistently. Every quarter. I’ll take that every time over “potential” growth. Every growth company, if it is of Apple’s quality, will eventually succumb to consistent, not growth revenue. Growth for growth’s sake is over rated for a mature, quality company. I’ll take the consistency if it is BILLIONS & BILLIONS & BILLIONS.

    I could go on and on, but tire of your nonsense. Your are giving people investment advice. Be serious. This is real money. These may be IRA’s or 401K accounts that might be affected by your “Wisdom”. Next time, make sure it’s wisdom.