AAPL Stock Yo-Yo Makes Me Dizzy

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

Having been an owner of Apple (NASDAQ: AAPL) stock since 1997, I should be used to these crazy market gyrations. The excuses vary, but a more than 6% drop on thin news is really ridiculous. Was this really about the tightening on margin requirements, in other words, a reverse short squeeze? I don't think so. This is really about uncertainty.

Yes, you heard me right, uncertainty. The market has seen the past and thinks that Apple as a company will fade just as Microsoft (NASDAQ: MSFT) has faded by being proven increasingly irrelevant as its Office Suite and Windows Software get replaced by the likes of Google (NASDAQ: GOOG) Docs and Open Office. In other words, web based solutions that do not really require Windows or expensive software licenses. Apple, despite all its prowess and magic in inventing new products, faces a future of being marginalized by web-based competitors. Its margins will suffer as cheaper imitations of its products flood the market, and as web based solutions make the devices used to view the software less relevant.

An example of this is the Google Chromebook. You can get one from Samsung for $250 and it will run all of the office type suite stuff out of the box and also run a number of apps that previously would only run on an iPad or iPhone. Another dangerous rival is Amazon (NASDAQ: AMZN) which is selling its tablets at below cost. Those Kindle Fires do amazing things. Maybe they are not as slick as the iPad, but they can get the job done and they allow Amazon to keep the consumer coming to their storefront.

What does all this have to do with AAPL stock bouncing around all over the place? Well, the fear is that Apple has lost its mojo. Now that Steve Jobs is gone, there will be no innovation and instead of growing, the company will shrivel up and fade into oblivion. Sounds like Microsoft, only worse, since Apple is selling for a very attractive valuation right now. The fear is that the this whole fiscal cliff will land us in recession again and most people will stop buying Apple products altogether.

I think this whole line of reasoning is nonsense. While its true that margins will eventually contract and competition will will dominate the low end of the market for tablets and smartphones, you cannot count Apple out just yet. Apple has a full line up of new products heading into Christmas. These premium products are aimed to those consumers with disposable incomes. By targeting the high end, there is some slight amount of insulation from the problems other companies face. The next earnings report will be critical to gauge the health of the company, but I think Apple will surprise to the upside in a big way. Supply constraints are resolving and product is flying off the shelves. Demand is strong and there is little evidence that it won't continue well into the Spring (at least until credible iPhone 5S/6 rumors appear).

My advice is to take some Scopolamine (seasickness medicine) and hang on for the wild ride. While long term investors may find the quesiness unpleasant, ultimately Apple has rewarded us very well for our abdominal fortitude. The numbers to keep watching are the increase in cash and short term investments and price to free cash flow. Every quarter the valuation of the company seems to get lower and the pile o' cash gets bigger. Who knows -- maybe those sneaky little financial elves at Apple have a nice fat special dividend in store for us before December 31. 

If you are a trader, the volatility should make you happy. As a long term investor I see the chance to keep adding bit by bit to my Apple holdings. I was sorry not to have caught Apple at $85 a share in late 2008 or early 2009, but who knows, I may be kicking myself in 2-3 years for not picking up more Apple stock at these prices. 

xerohype owns shares of AAPL, GOOG and AMZN. The Motley Fool owns shares of Apple, Amazon.com, Google, and Microsoft. Motley Fool newsletter services recommend Apple, Amazon.com, Google, 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!

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