Seeking Alpha
Mid-cap, energy, natural resources, technology
Profile| Send Message|
( followers)  

Apple's (NASDAQ:AAPL) stock has experienced a 50 percent decline amidst rampant "bearish speculation" about Apple's future. Without "news" the market is driven by technicals and "rumors." Since "verifiable rumors" have yet to emerge about "new categories," the market has assumed that none are coming. Since some of Apple's suppliers have hinted that demand is weak, investors have priced in "collapsing demand." Since Tim Cook won't address "rumors" surrounding demand for current products, or plans for future product releases, investors have chosen to price in the "most bearish scenario" to discount all "uncertainty." This bearish outlook has resulted in Apple's market cap falling by almost $310 billion, and many investors are calling for Tim Cook's resignation. I believe this opinion of Tim Cook says more about "Apple investors" than it does about Apple.

Apple reports Earnings after the bell, and the truth will be revealed. Unless Apple announces that it significantly missed the "official" guidance, I suspect the stock will rally. Those calling for Tim Cook's head fail to recognize the reality that even if Apple's margins contract, or revenue declines, it will still report a better quarter than any other company in the history of "capitalism." Anyone analyzing Apple should realize that it is irrelevant if Apple reports selling 35 million iPhones and 10 million iPads or 45 million iPhones and 20 million iPads. The "data" that has emerged over the past week, showing that Apple has maintained its "70 percent of tablet profit," revealed the facts that are relevant. The market for smartphones and tablets has grown, and Apple has maintained its command of profit and traffic. Even if sales "disappoint," Apple will likely announce that it has won where it matters. The market for tablets and smartphones should not be viewed as a "zero sum" game. Although the "competition" may be selling many units, very few of these sales are displacing profit that would otherwise go to Apple.

Apple Investors Are Too Short Sighted and Fickle

Anyone investing in Apple should be looking to the future rather than relying on "near term" speculation that tells us nothing about the future. The market tends to be irrational more frequently than it is rational. Rumors and speculation are driving Apple's stock, rather than "facts." Although some of the rumors may be true, I suspect the market is assuming all of them are. Using rumors, based on comments from individual suppliers, and conjecture based on "channel checks" is a "short sighted" mistake, and fails to account for the complexity of Apple's supply chain, and the reality of the "long-term" earnings potential.

I'd stress that even if a particular data point were to be factual, it would be impossible to interpret the effect on our business," Cook said. "Our supply chain is very complex...there's a long list of things that would make any single data point not a great proxy for what's going on." (Tim Cook)

Anyone taking "supply chain rumors" as facts is investing based on "conjecture," from secondary sources, rather than primary information being given to us by the head of Apple.

Conclusion

At $400, assumptions are being made that no "new deals" will emerge, Apple's margins will decline by 50 percent, and that Apple's product pipeline is empty. The market has a way of pricing in "uncertainty" by discounting it. At $400, I suspect the market has discounted the "worst case scenario." Although Apple could report "bad news" that will cause the stock to fall, I suspect the risk-return of going long into earnings is favorable to the bullish case, with $360 likely being the absolute bottom. Investors should listen to Tim Cook for a change, rather than worrying about rumors that may or may not be valid. Earnings will be released after the close, and the truth will be revealed. I suspect Tim Cook will have a few words of wisdom about the "rumors" that have prompted the 40 percent "drop" and I suspect the probability of a "positive surprise" far outweighs the likelihood of the "doomsday announcement" that the market seems to think is coming.

Source: Apple: Quit Whining About Tim Cook