Thursday, July 29, 2010

Don't Buy Apple -- yet

Apple recently announced revenue and earnings numbers for the 2nd quarter and they were excellent:  revenue and earnings continue to grow at a very fast pace.  So why isn't the stock going up? 

This is a good lesson for all investors. Whenever you have a stock that doesn't go up on good news, or doesn't go down on bad news, it's because of what the stock does relative to expectations. The street expected to get what they got from Apple and there was no surprise, so the stock is priced in-line with expectations. In other words, Apple's results were already built-in to the stock price before the earnings were even announced. When a stock surprises the street, up or down, is when you really get movement because it means the stock is not priced in-line with expectations immediately previous to the news or announcement about the stock.

Apple may yet go to $300, or $400, or $500, but I don't want to touch it until it starts to trend up again.  That means the pro's think the stock price is becoming a bargain relative to future growth.  Professionals control over 90% of the money in the stock market, so they are the ones that move the stock price -- not you or me.  So on this one, I want to follow their lead -- they have a lot of analysts working for them .... I don't have any.

Watch Apple, but don't buy.  We will consider buying when it breaks out above recent 52-week highs of $279 (it's around $260 now) AND the market starts trending up again AND Apple's financials continue to grow at the same rapid pace.  Until that happens, there's too much risk.  If Apple, like any other growth stock, fails to meet Wall Street's high expectations, the stock will take a nosedive.

CUPERTINO, California—April 20, 2010—Apple® today announced financial results for its fiscal 2010 second quarter ended March 27, 2010. The Company posted revenue of $13.50 billion and net quarterly profit of $3.07 billion, or $3.33 per diluted share. These results compare to revenue of $9.08 billion and net quarterly profit of $1.62 billion, or $1.79 per diluted share, in the year-ago quarter. Gross margin was 41.7 percent, up from 39.9 percent in the year-ago quarter. International sales accounted for 58 percent of the quarter’s revenue.

Apple sold 2.94 million Macintosh® computers during the quarter, representing a 33 percent unit increase over the year-ago quarter. The Company sold 8.75 million iPhones in the quarter, representing 131 percent unit growth over the year-ago quarter. Apple sold 10.89 million iPods during the quarter, representing a one percent unit decline from the year-ago quarter.

“We’re thrilled to report our best non-holiday quarter ever, with revenues up 49 percent and profits up 90 percent,” said Steve Jobs, Apple’s CEO. “We’ve launched our revolutionary new iPad and users are loving it, and we have several more extraordinary products in the pipeline for this year.”