So Much for the End of Apple
Mark is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
“The reports of my death have been greatly exaggerated,” Mark Twain said after hearing that his obituary was published in a newspaper. The same might be said of Apple (NASDAQ: AAPL).
Full disclosure: I am a big fan of Apple products, Steve Jobs, the company culture and of their stock. I have bought it at several different points over the last few years as part of the “growth” portion of my portfolio. In addition, in August it automatically becomes part of my income producing portfolio when it begins to pay its dividend. Call me a member of the Apple cult if you want.
On July 24 the company announced its quarterly results. Expectations and consensus estimates were not met. Future guidance from the company disappointed. “Only” 26 million iPhones were sold. Mac sales growth declined. A bright spot was that iPad sales increased significantly. Samsung Electronics Co. Ltd shipped almost twice as many smart phones as Apple.
Based upon what you saw or read, you may think that the sky is falling on Apple. It was hammered in the financial and mainstream media. The headlines blared that Apple was losing its edge because Steve Jobs died and they won’t release any more innovative products. The talking heads on TV wondered out loud whether Apple has lost its luster and whether its success would be limited in the future because it was only due to its “cult-like” status to begin with. As soon as that status diminishes, so will the company's success. Some commentators preached that the stock should be immediately shorted.
The stock immediately dropped in after hours trading. The next day the stock closed about 4.3% lower in regular trading. I was tempted to buy more when the stock dipped, however I don’t want it to comprise a larger portion of my portfolio. I have the 5% rule – no stock will make up more than 5% of my holdings. As a minimum, I will keep holding the stock and collecting my dividend checks every quarter until I believe the fundamentals diminish.
Cooler and smarter heads have prevailed since the announcement and its aftermath. The stock has recovered nicely. As I write this it has increased more than 6% off the immediate post-announcement low, outperforming the indices it is part of. Several recent reports indicate that a new iPhone will be announced on September 12 and go on sale later that month. A new version of the iPad, the “mini”, might also be released this fall according to various sources.
One of the major iPhone and iPad suppliers, Cirrus Logic (NASDAQ: CRUS), has increased its revenue guidance for later this year based in part upon expectations of higher shipments to Apple. Its stock jumped after the announcement and touched an all-time high.
Other Apple suppliers, such as Qualcomm (NASDAQ: QCOM) and Intel Corp. (NASDAQ: INTC), are well positioned to leverage off of future Apple success.
One irony is that Samsung is also a supplier to Apple as well as its main competitor in the smartphone space. In addition, there is an intellectual property trial in process which pits Samsung vs. Apple. To hedge your bets in this area you may want to consider Samsung. Worldwide, sales of smartphones are projected to continue growing over the next few years. Some markets have not yet been fully tapped. The only dark cloud hanging on the horizon is the European situation. However, that cloud hangs over many stocks with exposure to the euro zone.
The next time that you hear that the sky is falling, don’t push the sell button so quickly. Allow time for the “bad” news to be filtered out. Don’t count out Apple. There is still money to be made. The cult status is not about to end anytime soon.
Mathman6577 owns shares of Apple. The Motley Fool owns shares of Apple, Cirrus Logic, Intel, and Qualcomm. The Motley Fool owns shares of Apple, Cirrus Logic, Intel, and Qualcomm. Motley Fool newsletter services recommend Apple and Intel. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.
