It has been a difficult time for individual investors in Apple (AAPL) stock. Many are searching for answers regarding the volatility and the rumors. Here are my three insights of the week:
1) The Apple Tablet talk is officially back. And this appears to be more than noise. Oppenheimer analyst Yair Reiner, one of the most respected Apple analysts, has issued a research note that suggests Apple manufacturing will hit mass market production on the 10.1-inch touchscreen Tablet by February. This means that the unveiling of the Tablet could come as soon as January and the product could be for sale as soon as April. Reiner also mentions that Apple is offering publishers a 30/70 split which is far more attractive than the typical split at Amazon. I maintain my view that the Tablet will become Apple's flagship product as it redefines the way users access the Internet and consume media. I agree with Rupert Murdoch that the Tablet will save the newspaper industry.
As an analyst, Reiner has a solid track record; in contrast to the questionable commentary coming out of well known analysts Gene Munster and Shawn Wu. Reiner is the one who uncovered the true subsidy that AT&T (T) pays for the 3G iPhone, he has produced terrific research about how the accounting changes from FASB will eventually boost Apple stock, and about the importance of software over hardware in the iPhone's success. In May of 2009 he sat down with Apple executives and reported a series of strategic measures that they may employ to help grow iPhone market share in the booming smartphone market. Such access is highly uncharacteristic of Apple executives and shows the respect they have for Reiner. The fact that he is telling us that the Tablet is coming is legitimate.
What does this mean for Apple stock? It means that the momentum going into January's earnings report will be doubled by Tablet anticipation. Because of these two catalysts we might be in the final stages of seeing Apple stock below $200.
2) So much for the technical analysis gurus who were telling investors Tuesday that Apple was broken and that the uptrend was over. This is a stock driven by big money investors who like to buy low and sell high. This selloff began 8 trading days ago with the market up and Apple down. Perhaps today is the beginning of a reversal with Apple up and the market down. So far, today's Apple action is textbook hedge fund buying. I feel bad for all the individual investors who sold into yesterday's weakness. Too many lose money because they sell low and buy high. The only reason why Apple would suffer a significant drop is if the fundamental picture significantly changed for the company or the economy. As of today, both fundamentals are improving.
For those of you who saw Meredith Whitney on CNBC this morning talking about a probable double dip for the market, my response is that she doesn't understand the power of economic cycles. It is so difficult to fight the cycle. During the past two years of worsening economic conditions there wasn't a stock on Wall Street that could overcome the cycle. Investors need to be willing to adapt in this day and age of volatility.
3) Today marks the 7th day of the Apple selloff and you can tell that mainstream investors are getting nervous. Numerous blog posts are floating around discussing the negative technical picture and trying to tie some kind of news item with the fall. Little do they realize, this is the Apple pattern. Last month was the exact same, only worse. Last month's selloff lasted 8 trading days and the stock dropped to $185. Are the hedge funds selling today? No way. They sold at $205 and began the snowball that is now infecting mainstream Apple investors. E Weather is beginning our 20% buying this week with Apple at $190 and possibly lower. Keep in mind that buying at the low is never an easy thing to do as the stock usually drops below your risk tolerance. However, take solace in the fact that you are averaging into the best company on the planet in a stock with incredible valuation.
As for gold, it is becoming more and more obvious that it is the new investment vehicle of fear. Without fear, gold goes down as it has since the better than expected jobs report. Gold has replaced oil as this vehicle of fear. Ask 10 gold investors why they are in and they will give you ten different answers: all related to fear of inflation, Obama, healthcare, the dollar, international currency issues, etc... Each news outlet has multiple articles about gold, just like they used to have about oil.
What does this mean? It means as long as fear can be manufactured in an improving economy gold will go up, if fear cannot be manufactured gold will go down. As such, it is the perfect hedge for the portfolio. It should never become a huge holding but it can be used as a hedge. Because gold has no real fundamentals and is the ultimate 'emperor without clothes' it's important to stay very cautious. We averaged into a small position in the GLD and might look to add some LEAPS in January. It's much safer to make money on the way down than it is on the way up in a bubble.
Disclosure: long AAPL, GLD