Is Apple a Buy After Earnings?

Bob is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

When Apple (NASDAQ: AAPL) reported its fiscal third-quarter earnings, many investors likely held their breath. It seems like an eternity since the market reacted to quarterly earnings from the house that Jobs built with any sort of excitement.

In a development that probably surprised many, Apple actually handed in less-than-horrible earnings. Apple shares got a boost after the report, which likely has many asking: is now finally the time to buy?

Tough times for technology stocks

All told, Apple’s quarter was actually pretty good, and for that, shell-shocked investors can finally breathe a little easier. It’s been more than difficult enduring Apple’s non-stop slide from $700 per share to $400 per share over the past year.

Thankfully, despite the total sense of despair rained down from analysts and the financial media, Apple still in fact makes money.

Apple actually managed to eke out a tiny increase in revenue--$35.3 billion in the third quarter versus $35 in the same quarter one year ago. It’s barely growth at all, but judging by the massive sell-off over the past year, you’d have thought this company was on the verge of going out of business.

Earnings were weak, which was no surprise. Diluted EPS clocked in at $7.47, well below last year’s $9.32 per share. Still, Apple’s quarterly profit beat estimates, which were for $7.29 per share.

It’s a slow, muddle-through period for many large-cap technology stocks, which most investors are probably aware of by now. Analysts have ratcheted down their earnings expectations for many large-cap tech stocks, including Apple but also Microsoft (NASDAQ: MSFT) and Intel (NASDAQ: INTC).

Shares of Microsoft rose 35% prior to releasing its quarterly earnings on July 18, making it one of the best Dow Jones Industrial Average performers since the start of the year.

At the same time, there’s no escaping the fact that Microsoft’s recent quarterly results were ugly, and it’s not surprising that the stock has lost $5 per share in the few days since. Both quarterly and annual results missed expectations.

In all, the company racked up $73 billion in revenue and $2.62 in per-share earnings. EPS missed analyst expectations by $0.13, and revenue came up $5 billion short.

Much of the disappointment was due to the failure of the company’s Surface tablet. The software king took a $900 million charge in the quarter because of ‘Surface adjustments,’ presumably an effort to tell shareholders the company’s tablet simply isn’t selling.

Intel disappointed its own investors when it released its own quarterly earnings report. Revenue and diluted earnings per share fell 3% and 25%, respectively. Revenue is still struggling due to softening PC sales worldwide, and higher R&D expenses due to the company’s feverish push into mobile devices is dragging down profits. It remains to be seen whether or not Intel’s long-desired penetration into mobile will pan out.

Clearly, the market wants to see meaningful progress on the mobile front before it awards Intel a multiple on par with the S&P 500.

For Apple, an inconsequential quarter

The market was clearly pleased that Apple’s results weren’t as bad as feared, and that the company positively surprised on iPhone sales. At the same time, this quarter wasn’t going to make or break Apple either way. The big news investors are waiting for is all about what new game-changing products Apple may have coming, and when they’ll hit the market.

That being said, I think investors should be impressed with Apple’s ability to keep printing money without the tailwind of any meaningful product launches in recent months.

Apple sold 5 million more iPhones in the third quarter this year than last year. Sales of iPads declined slightly, but Apple’s absurd combination of massive profits, low debt, and moderate capital expenditures means its famous cash pile grew even further during the quarter.

Apple tossed another $2 billion onto its cash mountain, which now stands at just over $146 billion in cash and marketable investments.

Despite the ongoing lull in the company’s product cycle, Apple points investors to the fall of 2013 and across 2014 for new products launches. Considering Apple’s remarkable ability to stay afloat and the promise its future gadgets presents, there may be no better time than now to scoop up shares.

Shares are cheap now, but won't be for long if the company manages to release new products that carry even a shred of the innovative magic that made this company the most valuable in the world.

It's incredible to think just how much of our digital and technological lives are almost entirely shaped and molded by just a handful of companies. Find out "Who Will Win the War Between the 5 Biggest Tech Stocks?" in The Motley Fool's latest free report, which details the knock-down, drag-out battle being waged by the five kings of tech. Click here to keep reading.

Robert Ciura owns shares of Apple and Intel. The Motley Fool recommends Apple and Intel. The Motley Fool owns shares of Apple, Intel, and Microsoft. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!

blog comments powered by Disqus