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AAPL Stock – Is Apple a Buy at $500?

Apple (AAPL) is one of those stocks that investors are constantly at odds over.

AAPL-stock-appleTo some, AAPL stock is always unfairly criticized given its massive scale and history of success; to others, Apple is a fallen tech giant that will never return to the greatness it saw under Steve Jobs and the early days of the iPhone and iPad.

Of course, investing is all about current pricing and future potential. So while it’s difficult, let’s put aside all the history of Apple and simply look at where the stock is right now and where it’s likely headed.

In short, is AAPL stock a buy at $500 knowing what we now know after earnings?

To me, the answer is “not quite.”

Apple Earnings Disappoint

Apple stock rolled back a bit after reporting earnings that handily topped Wall Street’s ambitious profit targets. Revenue also beat expectations.

So why the disappointment? Well, because guidance was weak. AAPL predicted $42 billion to $44 billion in revenues for Q2 2014, below the consensus estimate of $46.05 billion.

Another weak spot was that the all-important iPhone segment fell short of targets, too.

The iPhone remains one of Apple’s biggest profit drivers and is in many ways still the lifeblood of the business. Apple sold 51 million iPhones vs. a 56 million sales target, which was a significant miss.

Taken together, it makes sense why AAPL stock sold off.

No Second Act

One of the criticisms of Apple is that it’s not moving beyond its legacy products to find new growth. And while the iPhone and iPad remain dominant, investors aren’t interested in maintaining the current course, but plotting an ambitious way forward.

In many ways, earnings validated these fears.

Furthermore, the narrative at Apple (as with many companies) has been to wallpaper over some of the holes in its growth plans via ambitious stock buybacks. While retiring AAPL stock artificially boosts earnings per share simply by creating a smaller denominator, investors are increasingly skeptical of these tactics.

Particularly at a company like Apple. Activist investor Carl Icahn has been vocally agitating for a major buyback, which in some ways has made Apple the poster child for no-growth, earnings-manipulating buybacks in the minds of some.

Adding insult to injury is how much Apple has been paying to buy back shares on the way down. The company just disclosed it paid $523.51 for 9.5 million shares — totaling $4.97 billion — and it paid a roughly 5% premium over current pricing.

Given This Sentiment … Wait on AAPL

If investors have learned anything in the past year or so, it’s that Wall Street is very much a sentiment-driven beast right now.

So why wade into this sea of negativity now? Particularly when macro concerns about emerging markets and overbought domestic equity could continue to act as a headwind in the short term?

The fear that AAPL stock isn’t just about trouble with revenue and iPhone sales.

As Dana Blankenhorn wrote over at The Street, it’s clear that Tim Cook’s honeymoon is over and leadership questions persist.

As Marcus Wohlsen of Wired wrote, the future is everything at AAPL — not past growth — and it’s very difficult to see an easy way forward for Apple.

And as you’ll undoubtedly see in the media across the next few weeks, the constant barrage of scrutiny amplifies any criticism and makes the bull case very difficult to hear above the noise about a fallen tech giant whose best days are behind it.

The charts show some good support for Apple here, but also a chance it could fall to $450 or so.

I say keep your finger off the trigger for a while, because there seems little chance Apple will break out anytime soon … and you’ll likely have ample opportunity to buy in across the next few months at similar pricing, given AAPL stock volatility during the past 18 months.

Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he did not hold a position in any of the aforementioned securities. Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP

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