"It's the man who waits for his ship to come in who's always missing the boat." - Anonymous
Readers of my columns know I have not been positive on Apple's (AAPL) short term prospects recently even as I hold a longer term position on the stock in the form of a long term bull put spread. The sentiment has been lousy on this equity for the last two months as the stock has dropped some 35%. However, I think the stock hit an inflection point on Friday and if we did not put in a bottom we are within shouting distance of doing so.
One would have had to watching the stock market closely Friday to see what I think was a capitulation moment on Apple (See chart). The stock blew through its technical support level of around $525 (May lows) that it had already tested several times and pundits were putting as a line in the sand. The stock plunged to under $506 just before noon. Almost as fast as it cratered, the stock bounced hard and was back over its $525 support level less than two hours later and it successfully held on to remain above this support level at the end of the day. To me, this marks a bout of panic selling followed immediately by buyers who viewed anything closed to $500 a share on Apple as a gift. I think we have now washed out most of the weak hands on the stock and I look for better action next week in this equity.
There was also other positive news on the stock Friday that could buoy sentiment on the shares as the news gets absorbed in the market. Among these positives were:
- It looks like the company is trying to work out its patent war with Google (GOOG) and a possible cross licensing arrangement might be in the works. This would remove a huge distraction and cost for both companies.
- It also appears a Google maps app is almost ready for the iPhone5 which would plug one of the few complaints about the smartphone. Nice to see the companies start to resolve their issues.
- Speaking of playing nice, Apple has almost doubled sales in the iPad in China since it settled a trademark dispute. Bears on the stock forget that the company is just penetrating this huge consumer market.
- In addition, Morgan Stanley issued comments stating it believes Apple will sign an agreement with China Mobile (CHL) next year as well as reiterated their buy rating and $714 a share price target.
- Another huge new market that Apple may open up is TV and rumors came out that tests are going on with a major cable-TV player.
- Finally, CNBC came out with an "Apple is a once in a lifetime" buy now call with Joe Terranova joining Doug Kass in pushing the buy button on the stock. I would look for more stories like this on the network next week. I especially think investors should pay attention to these observations from Kass "There's chatter that several hedge funds were over their skis in Apple," Kass said. "I know a number of hedge funds that have in excess of a 15% weighting." "It's been acting as ATM for hedge funds - a good way to raise cash." If accurate, this certainly could explain the price action in the stock over the last few weeks and bode well for a rebound in the near future.
Bottom Line: Apple is selling for less than 8 times forward earnings (subtracting net cash), growing revenues at better than 20% pace, with new markets to conquer and is giving investors a 35% discount to where it was trading just two months ago. Buying now could be the best Christmas present under the tree this year.