Seeking Alpha
, Small Cap Gems (1,667 clicks)
Long only, contrarian, special situations, value
Profile| Send Message|
( followers)  

Summary

  • The stock of Apple had its worst one day decline in seven months on a combination of negative factors.
  • Wednesday's sell-off finally offers a buyable dip as none of the reasons the stock dropped today are likely to have long term impacts.
  • Why Apple still represents solid value in this market and should rebound in short order is outlined below.

The stock of Apple (NASDAQ:AAPL) had its worst day performance in seven months - a "whopping" 4% drop. As one can well imagine, the shares' drop is being widely covered given that Apple is the largest publicly traded company by market capitalization in the market.

Several items are contributing to stock's decline, all of which are likely to have temporary impacts on the shares. First, the company suffered a data breach in its iCloud system that got a lot of attention due to some racy celebrity pictures that should never have been able to be accessed. Second, Pacific Crest came out Wednesday and said it might be time to take profits. Finally, given how much the stock has run up since its nadir in late June of last year (up ~80% including dividends) some profit taking was inevitable as the company could not keep making 52 week highs almost on a daily basis recently.

I believe the data breach publicity will blow over in short order and is probably a good wake up call for Apple to refocus on security especially in front of a mobile payments capability that will be part of the launch of next version of its iconic iPhone franchise. This launch announcement will take place next week and could generate a lot of buzz given some of the key new features along with the much awaited larger screens of the iPhone 6.

I believe the company is warranted in its confidence for the demand for larger screens (The company ordered ~20% more units than with the launch of the iPhone 5), as I know this author with his old eyes will be one of the first buyers of the iPhone 6 (My first Apple phone).

In addition, the mobile payment capabilities are a potential game changer. I agree with Stifel Nicolaus who believes Apple may have finally "cracked the code" for getting consumers to make offline payments with their phones rather than credit/debit cards. Obviously the firm that figures out this mobile payment challenge is going to have a huge market opportunity. Given Apple's NFC (Near Field Communications) capability, Touch ID fingerprint sensors, and 800M+ iTunes accounts; the company has as good or better chance of being the one that develops this huge opportunity. Apple is reportedly teaming up with American Express (NYSE:AXP), Visa (NYSE:V) and MasterCard (NYSE:MA) on developing this "iWallet" for the new iPhone 6.

Even after the stock's yearlong rally, the shares are still cheap when compared to the overall market. Apple sells for 15.5 times this year's expected earnings, a slight discount to the overall market multiple (16-17 times 2014's earnings). Apple is also seeing faster earnings and revenue growth than the S&P 500 overall. Subtracting the company's over $150 billion net cash hoard and Apple sells for under 12 times earnings, a substantial discount to the market. Add in a 2% dividend yield which is likely to be increased again over the next six months, and the stock offers a solid value after today's sell-off.

I added some long exposure in Apple for the first time in quite some time by selling some April 2015 $100/$85 bull put spreads for $6.10 apiece. I like the risk/reward structure of this play but could have just as comfortably added a few shares at $99 each.

Apple is nowhere near the screaming buy it was a year ago. However, the stock is a nice solid Market Outperform and investors should use rare days like these to add some exposure to this tech bell weather. ACCUMULATE

Source: Apple: Finally A Buyable Dip