July 20th, 2010

Apple: Are You A Buyer Now?

I have nothing new to add to all the discussion about AAPL (Apple) you can find in nearly any blog or newsletter today other than to underscore what an amazing product, company and stock it is. We tend to focus on the stock’s movement in after-hours trading today after release of their earnings report. Or we look at their year-to-date 19.53% appreciation – not shabby considering the fact that the market as a whole is down 2.84% YTD. Or we drool when we see the 64.73% move over the past 12 months, an amazing move on its own, let alone compared with the 13.92% the market turned over the same period.

If all this outstanding performance isn’t enough for you to start kick yourself and making you want to quit this stock market game altogether if you don’t own the stock, then take a look at what Steve Jobs and Company has turned in since he sold his firm Next to Apple and returned as CEO in 1996.

Are you sitting down? The following year, Apple was selling in the low single digits. I decided to take a look at the company’s history (available at several sites including Wikipedia) and overlay key product developments and came up with the following fascinating chart (click on image to enlarge):

I see three important lessons you can take away from the chart, points applicable to stock chart reading in general:

  • Apple was trapped in a range of approximately 6.50-15.00 for 18 long, hard years. One can play the range (buy around the bottom; sell around the top) but some of the best profit opportunities are when a stock breaks out of the range for strong fundamental reasons.
  • Strong business fundamentals are important but the health of the market trumps all else. Apple started its growth after the announcement of the settlement of the patent infringement lawsuit against Microsoft and its Windows operating system. But its stock came to a crashing halt along with the rest of the market in the Tech Bubble Crash of 2000-03 causing the stock to tumble 80% in value. During the Financial Crises Crash, the stock lopped nearly 60% off its value.
  • Once a stock starts its ascent, the knee-jerk reaction is to sell when you’ve made a 25%, 50% … you name it …. profit. We become antsy, want to roll over our profits into another winner. We’re instructed to “ring the cash register”, “play with the houses money”, “take some money off the table”. But it’s not easy finding a really great company/stock. From the 2003 Tech Crash bottom of 6.50, Apple has appreciated 3800%! What are the odds of being able to being able to consistently roll 50% profits over and over 50 to 70 times to match that performance? Winners are hard to find so, rather than selling as the stock goes up, perhaps a better strategy is to invest more in that winner.

Do I own AAPL now? No. Have I ever owned AAPL? No, I always thought it was too expensive. Should I buy AAPL today at these prices? You tell me.

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  • Anthony

    If the technical say there is going to be a broad market pullback then I say buy it on the pull back. Based on the fundamentals of future earnings growth I think the 325 price targets are realistic…however why buy a Mercedes you don't have to have for 60k when there is a good chance you can get it for 50k if you are patient?

    One man's opinion!

    I got in at 205 and will get in again if a pullback brings it to the 230 range. Maybe I am too optimistic that there will be that much of a pullback but that's my current plan. I welcome respectful criticism!

  • Anonymous

    GURU,,when Steve Jobs dies,,so does Apple stock..Would not touch it with your 10 ft pole..

  • Anonymous

    divide stock $$$'s by 10 you get 26. It's reasoable to get to 30 or 300 multiplying by 10 again. Not too hard to get. It's all about %-ages. A 10 point move is like 100 pennies- not too much to ask for. Don't look at a 40 point move. It's all about arithmetic!!!

  • Anonymous

    I've got a 316 price objective w/my tech method. Go for it!!!

  • Anonymous

    S&P500 price objective made today yields a 1190 intermediate target w/1295 ultimate in CY10. Cry Jesse!!!

  • Anonymous

    Correction is finally over!!! Off the fence Joe!??!??!

  • Anonymous

    Just when you think its safe,,they pull you back down,,time to run ,,now…