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Apple Earnings Show AAPL Is NOT a Value Buy … Not Yet, Anyway

Apple stock aaplApple (AAPL) reported fourth-quarter earnings after the bell Monday, and as expected Apple stock tallied another year-over-year profit decline.

Apple earnings did show 4% revenue growth and topped analyst targets on profits, for what it’s worth. But that didn’t stop investors from putting pressure on AAPL stock after hours.

Since AAPL posted its first EPS drop in over a decade this spring, the story has been one of Apple as a value investment — for the cash, dividend and low earnings multiple — instead of Apple as a growth play.

But it is hard to make a case for Apple stock right now as a value play, even if margins did hold tough and Apple iPhone sales beat expectations. The narrative, after all, isn’t one of AAPL crashing and burning. It’s simply that Apple earnings have peaked — and the meager revenue growth and slumping profits bear that out even if the details are decent.

However, it’s undeniable that AAPL has potential for a snapback after the bears unfairly punish this stock like they always do after sub-par news. So just sit tight and wait … because a dip back under $500 a share could provide a great opportunity in 2014.

Apple Earnings vs. a Long-Term Narrative

Entering earnings, shares of Apple stock had jumped about 25% since its July earnings report — and with good reason. When you look at the fundamentals of the business, the share price under $400 that AAPL was sporting at the end of June translated to a stock that was grossly oversold.

It’s not just the over $140 billion in cash and investments or the massive buyback plan of Apple stock, either. Many expect a strong upgrade cycle for its iPhone 5S and cheap iPhone 5C to provide some pop this quarter. And going forward, the newly unveiled iPad line that AAPL showed the world last week could provide even more buzz as we enter the holiday shopping season.

With BlackBerry (BBRY) circling the drain and Microsoft (MSFT) struggling with its mobile mission, Apple will be able to make some inroads into enterprise. Furthermore, a deal with China Mobile (CHL) could tap into big Asian growth over the next few years.

All this provides a compelling floor for Apple stock going forward.

But the problem is that investors are still adjusting their expectations based on year-over-year comparisons. Remember, just one short year ago AAPL stock was trading for over $700 a share — and is down over 20% from that late 2012 peak.

The bottom line is that there is still some adjusting that needs to take place in regards to Apple earnings expectations and investor sentiment … and Apple earnings are evidence of that.

Investors can’t shake the headlines about year-over-year profit declines, even if the core business is stable and there’s a juicy 2.3% dividend to boot with huge upside potential in payouts.

Carl Icahn and AAPL

Of course, Carl Icahn is agitating for a big move from AAPL executives to shift Wall Street sentiment overnight. His idea is a $150 billion Apple stock buyback scheme — something that would indeed change the game.

However, Apple is smarter than to bow to these short-term demands. AAPL isn’t going away and Apple earnings are still decent. The company grew its top line and beat expectations on earnings for Pete’s sake. It’s not like Apple investors are at risk of a crash that sticks.

But unfortunately, Carl Icahn is keen on the sentiment that’s out there right now — and it’s realistic to expect a leg down in Apple simply because the swing traders who bought at $400 may be looking to lighten their load, and because the market is reluctant to bid Apple stock higher.

So take comfort in Apple earnings, but sit this stock out if you don’t own it yet. There will be more volatility to come — and it’s realistic to expect a buying opportunity around $500 after the stock breaks down in the aftermath of earnings.

Related Reading on Apple Earnings

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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