Morning Word 1/24/13: $AAPL Investor’s New Normal

Morning Word 1/24/13: Last night’s Q1 results and forward guidance from AAPL was far from what bulls on the stock had hoped for.  While the company tried to simplify how they guide the street, rather than issuing guidance that was “conservative”, vs now issuing guidance “that they expect to report within”.  Well that clears up the 10 years of sandbagging their outlook, encouraging overzealous Wall Street analysts to dream up aggressive estimates.

Investors went into last night’s print with the hope that management would dispel much of the negative sentiment surrounding demand, production issues, innovation & visibility and frankly got very little that would help turn the tide, regardless of the poor results.  Where the stock settles, who knows, but as we have said in this space on numerous occasions, just as stocks have the tendency to overshoot on the upside, they can and will do so on the downside.

Yesterday, in the Word (below) I wrote, ”The new normal for AAPL investors will be looking forward to geographic expansion and dividend increases and share-buybacks, rather than counting how many people are lined up and for how long outside Apple stores for the next iPhone or iPad.”  To state the obvious, this is not the company that many investors had bought into over the last few years, exhibiting eye-popping growth on almost every metric with the stock going parabolic as the company grew earnings over 75% a year for the last 3 years.  Given AAPL’s massive deceleration, and new “credible” eps guidance, analysts have now begun to take whacks at 2013, with consensus now calling for only single digit earnings growth, which if this happens will be the first time since 2003.

SO for those un-involved in the stock (I am not long, but own a weekly Call Butterfly), what do you pay for a company that is growing earnings at modest pace, is expected to have close to $190 billion in sales this year, has a dividend yield of 2.25%, has $137 billion in cash on their balance sheet and no debt, and margins, albeit declining, 2x that of their next competitor?  Well the stock was cheap at $700 by most metrics and continues to be cheap down here, trading well below a market multiple.  Unfortunately for investors looking for product catalysts in the near future, they will have to settle for speculation into next month’s shareholder meeting how the rate of increase of their dividend and if and when they will institute a meaningful share buyback.  IN the future their product launches may take on the relevance of FB’s graph search thingy last week, the bloom is off the rose so to speak, the stock is now a show me story.

While I am not happy that my Butterfly will be rendered worthless by today’s move, I am happy about how we traded, taking half off yesterday for a double thus virtually having no risk into the earnings event.  I am tempted to play for a bounce if I feel the stock has reached an all out capitulation  but at this point that probably looks below $450.


Morning Word 1/23/13:   Ok people, we are gonna get a little AAPL’tastic today, but we promise we will get to some other stocks as soon as we get tonight’s Q1 earnings out of the way.  We have spent a good bit of time on the stock over the last week and half, starting with our webinar last Monday (here), my post on Friday detailing the Jan25th 525/550/575 Call Butterfly that I bought to play for a bounce post the print (here), and finally this morning’s official RR.com preview (here).

I guess I want to make one final point about how I think the stock could trade following tonight’s results, while I am playing for a pop from a trading perspective, I am not by any means expecting a sustained rally.   The new normal for AAPL investors will be looking forward to geographic expansion and dividend increases and share-buybacks, rather than counting how many people are lined up and for how long outside Apple stores for the next iPhone or iPad.  Many readers think I am wrong on the idea that the company’s days of dramatically outperforming on the innovation front are over, but only time will tell.  

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