When something falls this rapidly from grace, it is generally a celebrity, a sports figures or the occasional general. It can also be a company, but rarely a company as large and as important as Apple (AAPL). In late September, it was the greatest company in the history of the world. Now, a future Hewlett Packard in the making. Road kill.
We can all agree from a valuation perspective, Apple is cheap. Spectacularly cheap. A few quick metrics on how cheap:
However, based on how Apple is performing, there are clearly other factors at work that matter much more than current valuation. Because let’s face it. If Mr. Market thinks your future is bleak, your current valuation gets crushed, Valuation metrics that are impossibly low go lower. Just ask Seagate (STX).
Let’s consider what factors could be playing on the stock beyond valuation. In no particular order:
Quite a list. As an aside, it seems odd that there are complaints about both the iPad mini’s price and supply. Seems if the price is a problem, demand would be low and supply wouldn’t be. When sentiment turns, logic often departs. However that is a post for another day.
So which of these factors are the problems in the current price action? Probably all of them, with gain harvesting at lower tax rates the likely number one culprit on the list.
Better than the above. A lot better. With the exception of the sixth item on the list, I expect that these issues will recede in time. Each of these issues is either a temporary storm or will get fixed over time. Let’s revisit the list with a longer term perspective:
So now that we have some perspective on Apple’s woes, how do we trade it? If you are a short term investor, I would avoid the stock until these short-term headwinds dissipate. As cheap as the stock is, it could get cheaper still. Coupled with the current volatility, it is a very risky time to enter.
If you own the stock and don’t want to sell for tax reasons, I would not sell here, but rather hold on and do your best to ignore the short-term price action.
If you are thinking of buying AAPL for the long term, now would be a great time to enter. I would do it slowly, start to average in over a period of weeks. Long term, I think the stock is a screaming buy at these levels. And as good as I think this entry point is, there may be even better ones available in the near future. Best to keep some powder dry.
Disclosure: I do not currently own Apple and do not plan to initiate a position in the next 72 hours.
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