Apple: To Buy Or Not To Buy, That is the Question

For the last few years, Apple has been one of the hottest companies–and stocks–on the planet. But this week, the Apple aura took a huge blow when the company reported softer-than-expected iPod sales and provided earnings guidance below analysts’ expectations. Today, the stock plummeted 11% to $139.

What should investors do now? My gut feeling told me to avoid Apple like a New York City train during cold season. But I’m starting to feel more bullish about Apple after doing some homework. My colleague Peter Burrows provides a pretty convincing case that “there are signs that Apple can not only weather an economic contraction but emerge stronger than ever” thanks to growing strength in its PC business of all things–which produces triple the profit of an iPod.

Mark Kandel from Goldman Sachs actually raised his earnings forecast for Apple (only 3 cents) as a result of “strong Mac growth, increasing iPhone revenue, better gross margin, and a richer mix of iPods.” Toni Sacconaghi from Sanford Bernstein maintained his estimates but wrote that “trading prices (i.e. below $140 share) provide an attractive entry point.” Still, he is cautious, arguing that iPhone expectations “may still be too aggressive”; he also thinks the recession could crimp consumer demand–even for Apple products.

What are you doing?

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2 Responses to “Apple: To Buy Or Not To Buy, That is the Question”

  1. Reality Says:

    Buy. The selloff was people making money. They will now buy at the lower price and wait for the inevitable bounce.

    The negative hype is all spin. Reality is all in the numbers, which are fantastic!

    No debt. Very strong balance sheet with tones of cash. Inventing many new products that people actually want to buy, and a nice margin to boot.

    Apple is also very well insulated from a recession, that was proven by the record holiday sales, when others fared poorly.

    Also, don’t forget that the “lower then expected iPod sales” is more spin, as the iPhone was counted in a separate column. The iPhone IS an iPod. Factoring this in, iPod sales growth FAR EXCEEDED the streets stupid whisper predictions.
    Even better, the iPhone has more profit built in and also revenue sharing…. only upside here, and bulls all the way. The “wag the dog” media won’t be able to smoke screen this too much longer, buy now before the drunken stupor wears off.

    The media spin in this case is so blatant and obvious, it’s a wonder they get away with it without their credentials being revoked… either they are completely incompetent, or their is blatant collusion and fraud to drive stock prices using the puppet media. As the writer says, on the surface, he was scared because of his “gut” (caused by dishonest media spin and lazy regurgitated & unresearched media copy and paste). Then, when he actually researched the truth, he starts to “feel more bullish”. I commend the author for his honesty & candor.

  2. spencerante Says:

    Good points reality. I agree that there is a substitution effect going on with the iPod and iPhone. Some folks who were thinking of getting a new iPod clearly purchased an iPhone instead. But analysts haven’t baked that factor into their models yet. It remains to be seen how much the iPhone will eat into iPod sales but it’s something to watch.

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