The smoke has cleared from Apple's (NASDAQ:AAPL) last earnings call, and where the share price of $500-$515 used to once stand at the foot of the 20% decline from it's all time high, we find Apple longs grazing the charred rubble of what once was, faced with a $450 share price heading into February.
With the chaos behind us, we stand here with a fresh month of trading ahead of us; uncharted territory for Apple, a company that's writing its own legacy and story with each day that passes. Here's two takes on how we're faring heading into this month:
Apple's Bad Momentum Leading to February
For fear of stating the absurdly obvious, it's been a less-than-stellar few months for Apple's investors. After Apple had missed on earnings the previous two quarters, emotion and fear were operating at an all time high leading up to January 23rd's results. In my last article about Apple, about a week before earnings, I noted:
Most recently, the share price has taken a nose dive on technical indicators such as the "death cross" (short-term moving average crossing below long-term moving average), compounded by reports that Apple has recently cut orders on parts used in the iPhone 5.
The doom and gloom continued through the earnings report: guidance was low, marks were missed (barely) in terms of product sales across the board, revenue missed (barely), margins missed. Analysts failed to even consider the possibility of absurd expectations going into earnings. CNBC, Seeking Alpha, analysts and bloggers alike all slammed the big red button with "EVERYBODY PANIC" written across it.
This panic has a serious chance of sticking around. It appears that people are starting to enjoy occasionally using Apple as their punching bag. If this kind of fear, uncertainty, doubt and volatility continues to stand (regardless of whether or not it's actually warranted), Apple could be in for a bumpy road on their way to their next earnings release. Here's poster-boy for "fomenting fear" in equities while he's short them Jim Cramer, calling Apple a "Helpless, Pitiful Giant". The public sees this, unaware of Cramer's past and sometimes even unaware of what a short position is and they think to themselves, "Mad Money guy no confident? Bad. Me sell now."
After missing three earnings reports in a row, retail investors could panic leading up to Apple's next earnings. This, of course, assuming that Apple does not provide an operations update with substantially good news beforehand.
Apple's Good Momentum Leading to February
I can't convince myself to head down the bearish road with Apple.
In their last earnings report, Apple announced $54 billion in revenue and a cash position of $137 billion that makes Donald Trump's net worth look equal to the net worth of a guy that changes the urinal cakes at the airport; they're not exactly worried about the power to the building being cut anytime soon. It's beginning to dawn on investors that analysts were a big catalyst in the downfall of the share price.
Apple's CFO Peter Oppenheimer obviously realized this was going to be an issue and, while accepting that it was going to lead to short-term recalibration, thought it would be better for the long-term to offer guidance a bit more responsibly. As, this article notes:
In the past, Apple has provided a single point, (one revenue figure, for example), the company expects to hit over the coarse of the upcoming quarter. Apple is notorious for releasing conservative numbers then blowing them away when it reports earnings a few months later.
Now, things will change. Instead of offering a single point, Apple will begin offering a range.
Peter Oppenheimer explained the change on the Apple's Q1 2013 earnings call, which is going on right now:
"In the past we provided a single point estimate that was conservative. This quarter and going forward, we are going to provide a range of guidance that we're likely to report within."
What does this mean? It means that the last guidance offered was a big recalibration for not only analysts, but the market and retail shareholders. Everybody is so used to Apple annihilating guidance as they'd done in the past, analyst expectations have gone astray and needed to be roped in by Apple executives. 18% year over year revenue growth and substantial recurring growth with impressive margins for years now -- and this kind of panic sets in on a small share of a miss on earnings? Simply baffling.
This was a savvy move for Oppenheimer. He's taking the analysts from a push to a pull, essentially saying : this is our company, we're selling our product, we have the best interest of the shareholders in mind; we're going to be the authority on guidance.
Oppenheimer is going to be praised in the future for this recalibration. There's no doubt he knew this last earnings call was going to be ugly, but from this point forward his new strategy will be kept in mind, allowing analysts and retail's expectations for earnings run commensurate with the company's.
Four February "Feel Good" Factors
Do you really need a reason to like dividends? OK -- here's nineteen of them. What a comforting piece of reassurance from a company a dividend is. In the midst of a stock performing in the following manner over the last three months...
... a dividend is the hand that rocks the cradle, assuring you that although your investment could potentially be off in the short-term, the company still wishes to afford you the courtesy of a guaranteed return on your investment.
Apple's ex-dividend date is 2/7/13, and they'll be paying a handsome $2.65/share. A nice little perk for Apple longs; pocketing a little extra cash just for maintaining your belief in the company. If you're extreme long term bullish on Apple and have over 200 shares, you can then help yourself to another share of Apple -- for free.
Dividends in the market remain the best loyalty program company's have implemented since casinos started handing out buffet tickets & free rooms simply for handing over your hard earned money directly to them.
2. Macworld (Jan 31 - Feb 2)
Some gatherings after catastrophe just make you feel warm & fuzzy on the inside: your mother making you chili after skinning your knee playing football on a freezing winter's day; a therapy group having a cry together after you find out the mailman has been delivering more to your wife than just the mail; and Macworld, a massive mash-together of Apple investors, Apple enthusiasts, and Apple developers -- all densely caged within the confines of a several thousand square foot area; feeding off one another's energy and basking in the ultimate nirvana of Apple dorkdom.
Macworld has been running since 1985, and although the company has ceased "official" ties with the expo since 2009, it's still regarded as Mecca for Apple fanatics. It's where the iMac and the G-series Macs were introduced. It's where iTunes and iWork made their way to the public. It's where Intel-based Macs were introduced to the public. It's where the MacBook air first touched ground. A special place, with a special mystique for Apple fans.
One of the great things about Macworld is the press that it always gets. Usually, there are a slew of new innovations and developments, if not by the company then by third party Apple affiliates that they are anxious to serve up tot eh public. This year's event is going to feature Ashton Kutcher, who joins Noah Wyle on the list of people to play Steve Jobs in movies. The feature film JOBS, heading to theaters, is going to be enormous press for the company and it's products.
This forum is the catalyst for that to take place; so at Macworld every year we inject fresh blood into the Apple product bloodstream.
3. Valentine's Day Sales
This year, as they often do for Valentine's Day, Apple is going to be offering free engraving on their products as a valentine's day promotion. On their Valentine's Day themed site, Apple notes that orders to take advantage of free engraving need to be in by January 30th. Apple will also be offering Valentine's Day theme gift cards for retail stores, online shopping, and iTunes.
Why is this important? In essence, it's Apple locking up Valentine's Day sales well before most men usually start considering Valentine's Day (which is usually around February 13th, roughly 11PM local time).
It will prove to be yet another shot in the arm for the company -- another reason to leave the house and go out to buy an Apple product. Any minor catalyst that this company can use for sales is going to be an opportunity for them to capitalize on. It's this investors opinion that they will execute up to and through the holiday with precision, bolstering revenues for the current quarter.
4. Technical Indicators
Let's face it: the technical indicators leading up to and through the Apple earnings call were absolutely atrocious. AS I pointed out in an article, I recently wrote,
Charting, as I often state, is a love/hate relationship. I dislike it because I don't like the notion of trading a company based on the chart without the fundamentals, but in the computerized algorithmic world of trading that exists nowadays, it's a necessary evil. You have to think like a machine in order to make moves that will preempt computerized runs and raids of stocks -- and that's why I think charting is a necessary evil.
Let's consider Apple heading into, and then post earnings:
You probably couldn't swing a dead cat on Wall Street without hitting an analyst that would look at this chart and tell you that the company appears to be suffering from intense malaise, trending downward seriously.
What I gather from this chart is a serious support level at $440. With the RSI and full stochastics riding the oversold line steadily, we could see a double bottom at $440 over the next week before a steady recovery and climb to the $475 range. To a lot of people, this chart screams sell; to me it screams opportunity.
"Millionaires are in the minority because they do what most don't."
If you're already long, a strategy could be adding to this position at what I feel is a definite bottom here for Apple. You'll be reaping the rewards of your dividends to start off the month, so why not take that free loot and reinvest to bring your average down (assuming it's above $450)?
If you're looking to hedge against a long position, you can always go ahead and write covered calls or buy to open a small put position for the near-term.
If you're just introducing a long position, why not set a plan to invest over time, averaging your cost basis to protect against another share correction? Make a plan and stick with it. Be a disciplined buyer; set limit orders and pay exactly what you're willing to pay, when you're willing to pay it. Act with confidence.
If you're short Apple, why not write puts or go long calls for a little protection through March, where Apple is sure to comment on how it's doing in relation to the guidance it stated during it's conference call.
No matter your stance, balance and protection remains paramount to any investing strategy. This investor thinks that February brings great things back to Apple longs; but no matter your position, I wish you all the best of luck going forward.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.