Apple's Stock Is Not Manipulated, But Things Are Changing

| About: Apple Inc. (AAPL)

Shares of Apple (NASDAQ:AAPL) are trading down $5.21 this morning - reaching a low of $450.48 on no news. There are discussion on Twitter and other articles that the stock is being manipulated. "Manipulation," however you chose to define it, has become the default answer to the question, why is my stock going down?

Remarkably, the market is never presumed to be right. When shares go up, stocks are "overbought," and when shares go down they're "oversold." We can't make up our minds. This speaks to the biases that we have and the pitfalls that exists with always "wanting to be right" - regardless of the facts.

Somehow, admitting that our companies have poorly executed never enters the rationale for why a stock goes down. "Manipulation" was also the prevailing reason given by frustrated Nokia (NYSE:NOK) investors who are simply unable or unwilling to admit that Nokia has grossly underperformed. But at some point, investors have to be willing to stand up and face the music.

Leaning from the mistakes

As an Apple shareholder, and one that covers a broad range of sectors, I'm constantly asked "why is Apple's stock so manipulated?" I get a chuckle each time I'm pressed for an answer. Because remarkably, I was never asked this question when Apple was soaring form $300 to $700 in what seems like a blink of an eye. That's because somehow "manipulation" only goes in one direction - at least that's how it seems.

Unlike most investors, I can admit that Apple's decline has been due to Apple's own failures. A company can't apologize with the frequency that Apple has over the past several months and expect its stock price to stay up. Unfortunately, the timing, which has been during a period of flawless execution by rivals such as Samsung (OTC:SSNLF) and Google (NASDAQ:GOOG), has been inopportune.

"Cannibalization" was another word that was screamed at the rooftops of every sell-side analyst who saw potential revenue and earnings misses around the corner. There's also evidence that Apple anticipated some potential declines. For instance, last year Apple announced the new iPad in March, almost a month before its fiscal second-quarter earnings results.

However, only a short few months later in the summer, the company announced along with the highly anticipated iPad Mini an iPad 4. This was a sloppy example of execution and poor product-cycle management. Essentially, Apple completely refreshed its product line in a manner that it killed any traction of the March launch. What's more, there were only incremental improvements of the new devices.

Consumers that bought The New iPad (iPad 3) were (understandably) angry. Tim Cook did his best to fix this situation, but fell short. Apple said it would give customers a chance to exchange their iPad 3 purchases for the iPad 4 if they were purchased within 30 days. That was all well and good. But unfortunately, this was only the beginning of series of failures such as order cuts, problems with demand, of course we remember "Map-gate," then there were some PR gaffes regarding China prompting Tim Cook to offer an apology.

The reasons only fueled the fire of those who insisted that not only has Apple lost its innovative quality, but the company was on the decline. This was hard to refute. These were the reason that Apple's stock was on the decline. It had nothing to do with manipulation. The question is, has Apple learned from this mistake? Equally important, however, have investors learned from it?

Moving forward

Several weeks ago, when Apple reported results for the fiscal second-quarter, there were no new product announcements. However, Tim Cook offered some hints by saying:

"We see great opportunities in front of us, particularly given the long-term prospects of the smartphone and tablet markets, the strength of our incredible ecosystem, which we plan to continue to augment with new services, our plans for expanded distribution, and the potential of exciting new product categories."

This is clearly a step in the right direction. Apple seems more mature. This time, investors complain that the company is being too secretive. I think it's sign that Apple has learned its lesson. The Street is eagerly anticipating a cheaper iPhone, an iWatch or an iTV - perhaps two or all three will be unveiled this summer. There are signs from known Apple suppliers that something is in the works. But the shorts are still placing their bets against the company.

Bears remember what happened last year. However, the odds of cannibalization are slim-to-none this time around. There will be a new tenor when Apple refreshes its product cycle. As it stands, with the stock trading at a P/E of 10, Apple is still being discounted. However, when the stock had reached $700 and everyone owned Apple, the fall was inevitable, because everyone there wasn't anyone left to buy the stock.

Today, the opposite holds true - the bottom had fallen out. And if you suggest that the stock should fall more than it already has, or lower than $385, than you're not valuing Apple's $145 billion in cash. The fact is, Apple's worst days have come and gone. Given the revenue that the company can still produce, $650 per share is not an outrageous target from here.

Bottom line

Consider that even when adjusting out Apple's $145 billion in cash, and adding in just modest cash-flow projections, the stock still supports a fair value of $525 today, or 15% higher. Couple this with the company's commitment to buy $60 billion of its shares, it's tough to bet against Apple at this point.

Apple has proven that it is not being led by magicians. Management has missed its mark over the past several months, but I don't think there is a company out there that has ever batted 1.000. For that matter, the company has not hit any home runs, either. But it's only a matter of time. For now, at least, the days of Apple striking out seems to be over.

Disclosure: I am long AAPL. 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.