I closed out the Apple (AAPL) position in my blog model portfolio in August at more than $180 per share after a 52% gain and also trimmed my clients’ AAPL holdings at that time, but after the stock has been beaten up in the latest sell-off, searching for a re-entry point seems like a worthy endeavor.
Apple has always sandbagged guidance. The market had gotten used to it and never really punished the stock after earnings reports that handily beat quarterly earnings but issued forward quarter guidance below expectations. That all changed three months ago after Apple issued guidance that was overly conservative, even by their standards, and the stock got crushed.
Trading in the low 90’s during yesterday’s pre-earnings trading session, investors expected more of the same. Apple’s guidance had been for $8.0 billion in sales and about $1.00 of earnings. The company actually reported $7.9 billion and $1.26. Analysts were at $1.65 for the current quarter and many figured Apple would guide to $1.30 or $1.40.
Given the uncertain economic environment, coupled with last quarter’s overly conservative guidance, I figured this quarter’s guidance would be equally uninspiring and investors would get a sell-off in the stock, perhaps well into the 80’s, which in my view would be a great entry point. As a result, I did not buy any Apple shares during yesterday’s weakness.
Apple guided this quarter to between $1.06 and $1.35 last night. Compared with current consensus of $1.65, this looked perfect for my thesis. Even if Apple beats its own guidance handily, there is little chance they will actually beat $1.65, so what would prompt the stock to rise?
Well, oddly the stock is up $8 in pre-market trading this morning to about $99 per share.
I guess the numbers could have been worse. Perhaps everyone who wanted to sell Apple has already done so. Still, I would not be a buyer up 8 points in a down market today.
Personally, I think a very conservative fair value estimate on Apple stock, in today’s economy and market environment, is around $100 per share. I get there by taking 15 times net trailing operating earnings and adding in the company’s huge $24.5 billion cash hoard. If the stock gives up today’s early gains, Apple bulls should take a hard look at the stock, in my view.
Full Disclosure: Peridot was long shares of Apple at the time of writing, but positions may change at any time