When it Comes to Apple: Invest, Don't Trade!

By moshe kalige - September 21, 2012 | Tickers: AAPL, BBRY, HPQ | 0 Comments

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Recent event for Apple (NASDAQ: AAPL) has been exciting and confusing at the same time:

From one hand:

• IPhone5 has been announced, Pre-Orders crossed 2m in the first 24 hours, people are waiting at Apple stores all over the world to get the new device and there is plenty of time left till the end of the quarter!
• IOS 6 came out on Sep 19^th, 2012.
• Apple won the patent breach lawsuit against Samsung recently.
• There are more than rumors about mini iPad and Apple TV coming soon.
• Several analysts raised their target price for Apple share recently to 750$, 800$, 850$ a share and much more.
• About 90% of the analysts covering the share are recommending it as a buy.
• Apple started to pay dividend (around 1.6% annually) for the 1^st time.

From the other hand:

• Apple (NASDAQ: AAPL) share reaches new all times record price of 700$ and this kind of price, always brings it to the top of the news headlines and fear from a sell off
• Growing competition with brand new models and new operating systems.
• IPhone4s sales slowed down this quarter (As it happened the quarter before)
• Investors and analysts raise doubts in Apple (NASDAQ: AAPL) share as Apple might be missing again on analysts estimates for the quarter for the 2^nd time in a row and therefore, one should sell the share.

But, should there be a fear? Will it be so bad to Apple if will miss this quarter estimates!

My answer is simple: based on past behavior of Apple share (NASDAQ: AAPL), the best way to play the share is not to play it at as we reach earning season!

If instead of Apple we were looking into computer manufacturers such as Hewlett-Packard (NYSE: HPQ) which suffers from declining business as analysts keep talking abut the post PC era or a mobile phone manufacturers such as Research In Motion (NASDAQ: BBRY) with declining revenues and risky future due to missing on the smart-phone market ,missing estimate might be dramatic event and these companies share direction is very clear for now: down! but, since it is APPLE we are talking about, don't trade. Hold it as long term investment!

The chart below provides clear picture of 2011-2012 performance of AAPL, HPQ and RIMM. The chart shows clear difference between Apple, a growing company, leader in it's field and companies that suffer from shrinking market share and who lost their leading position in their field due to tablets and smart phones.

-           Source yahoo finance

The fact that Apple misses or beats estimates for the quarter is not relevant to your investment decision! Just for the sake of argue; let's assume that iPhone5 sales will not be able to close the gap from iPhone 4s slow sales for the quarter. Does it affect the share for the long term? Is it a negative sign for Apple?

The simple answer is: it does not! Reviewing the below table shows that the same situation happened at least two times for the last year and that at the following quarter Apple blew earnings estimates and share price continued to go up (more than 73% for the recent year)!

Yes, if Apple misses estimates, Apple share might respond to the news and drop even 5% following the announcement, but, the table shows us that the shares corrects it's price almost instantly.

- Source yahoo finance

When you analyze Apple, share price and analysts estimates are only one part of the picture. Watch the growing cash flow (which continues to grow even after 10B$ annual dividend payments), look at the large profit margins (around 24%), iPhone5 sales expectations, product and services pipeline and Apple continued growth!

Don't be afraid from share price and market cap since they reflect and follow Apples positive performance.

Bottom line, the best way is to invest in Apple and not to trade it often on analyst news or fears! If you held your Apple stock from Oct 18th 2011 until today, Apple share went up from 420$ to around 700$, but, if you traded it, most probably, you either lost money or earned a lot less!

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