AAPL: Very Low Hanging Fruit Or 2008’s S__T Stock?

I’ve said it before, so it’s time to say it again about Apple’s stock price. What goes up, must come down.

That applies to the basic laws of gravity and certainly to the high flying stock price of our favorite Mac, iPod, iPhone maker.

That said, I had to laugh when CNBC’s Erin Burnett characterized Apple’s $130 stock price as the s__t stock of 2008. Really? A drop from nearly $200 a share to barely $130 a share in a few weeks makes a stock turn s___ty? Who knew?

A pretty face doesn’t need to be such a potty mouth, especially in the face of the obvious, and Erin isn’t even a blonde, so she must have figured out Apple’s stock price drop percentage all on her own. Or not. Common sense should be applied to AAPL’s current stock situation.

Really, though, isn’t this old news? Apple’s stock has been on a roll for so long did anyone, blonde or otherwise, think AAPL would continue to go up forever? It just doesn’t happen. What goes up, must come down. Even if for a little while.

Even when a stock has strong and steady, heady growth, as AAPL owners have enjoyed in recent years, there are always pull backs, reality checks, market fluctuations, and profit taking to deal with, right?

Did I mention profit taking? Back in October, after Apple reported record numbers again, I predicted a rough road ahead for my favorite and most profitable stock. Why? If anything, because what goes up really does come back down again, sometimes for a long time, sometimes for a short while.

Immediately I was challenged by a few Mac360 readers for my credentials, my education, and common sense, as if I was the only person in the world who figured out that high flying stocks sometimes drop, despite continued good financial performance. Apple’s financial performance was good back in October 2007 and it was even better in January 2008.

So what happened? AAPL hit the wall. It happens. Deal with it. Get over it. Move on. The wall, Kate? What’s that? It’s the wall-- the law that says ’what goes up, must come down.’

The forces that drive a stock price down may or may not have anything to do with a company’s financial performance. Too many other factors are at work here.

There’s the general U.S. housing market collapse, followed by the stock market collapse which doesn’t appear to be limited to Wall Street, and suddenly those who got on the roller coaster ride realize that true excitement comes with the drop, not the steady increase up the incline. Then there’s the U.S. presidential election which always seems to put a damper on stock prices during a change of administrations. There will be a change.

AAPL’s s__t stock of 2008 is affected by all that and more, some of which is not even reasonable or tied to a company’s true financial performance and status in any given market segment at any given time.

I’m not one who believes in weighted indexes, moving averages, PE ratios (which used to be something of a guideline, but no longer) or any of the so-called stock indicators.

If there’s a mathematical science in there then I don’t know what it is and don’t know anyone else who does because they cannot accurately predict the ups and downs of the market let alone an individual stock. Therefore, what difference do all the averages, ratios, indexes, indicators, and other ‘guides’ really mean?

I buy stock based on Peter Lynch’s philosophy. Remember Fidelity? Buy into good companies. A good company has good products, solid management, loyal customers, growing revenue, growing profits, growing markets.

After that, sit and wait awhile. The stock will go up. When it goes up enough, take some profits. The stock eventually will go down and the price won’t have anything to do with all those ridiculous pseudo scientific indicators. When it goes down an abnormal amount then that usually points to a decent buying opportunity (gotta do something with some of those ‘profits’, right?)

My father used to say, ’It ain’t rocket surgery or brain science.’

Anyone who bought AAPL at $130 and watched it move to $200 should have been taking some profit along the way.

That’s an awesome amount of profit over time, so taking profit helps mitigate the drop back to the $130s. Now it’s a waiting game.

So, let’s ask ourselves a few questions. Is there anything wrong with the Apple business model? Are there serious, fundamental issues with how Apple makes money? The Mac is on fire. Overseas markets may help extend the iPod’s life cycle, but that product’s growth is slowing (overseas expansion may help). iTunes Store should continue to grow but may not bring as much to the bottom line.

Apple’s iPhone business appears on fire, too, so the only question is ’how profitable‘ and ’how sustainable‘ is it? Customer satisfaction is off the charts so I suspect popularity (measured in sales and revenue and units sold) would improve even as the price of the iPhone drops over time, just as it did with the iPod.

Then, what else does Apple have under the sheets that we don’t know about but could be a game changer? Apple TV? Add a DVR and put the box into every AT&T home and Apple gets another leg to run on. In other words, there are not many flaws in the the stock pie Apple is baking.

When CNBC’s Erin ‘Don’t Hate Me Because I’m Beautiful’ Burnett says AAPL is the s__t stock of 2008, she’s obviously trolling for web site hits, more viewers and the incessant need of media rock stars to stir up a little controversy. It’s what they do. However, so far in 2008, Erin is correct, AAPL is ‘one of’ the s__t stocks of 2008. Not the company, Apple. The stock, AAPL. Apple is doing fine. Over time, AAPL will do fine (again), too.

It’s easy to describe a stock as s___ty because of performance over a month long period. But that’s a cheap shot, really, so shame on you Erin. You should know better but you went for the headline rousing sound byte instead of insightful analysis. Apple didn’t get where it is because of spotty performance. Neither did the stock price.

Sure, what goes up, must come down. Sometimes, what is down is also a good buying opportunity, especially when the fundamentals of a business are good. How do you rate Apple’s fundamental business, Erin? What? No comment? 

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