Apple Turns To Gold, Rife With Speculation

Mar. 6.12 | About: Apple Inc. (AAPL)

Gold bugs speculate on gold for two reasons. They think the long-term trend is always up, and that there is real underlying value in it.

Lately this has become the case with Apple (NASDAQ:AAPL) stock. Since it's now the most valuable company on the exchange, it's considered almost a form of currency among traders. And this leads to speculation.

Unlike gold speculation, which is often timed to world events like the possibility of wars, depressions and other disasters, Apple speculation is tied to happy news, like tomorrow's expected announcement of an iPad 3. (Or should we say the iPad HD.)

Right now, buying Apple puts in advance of the announcement, anticipating a short-term swoon in the shares, is the thing.

Just don't think this is easy money. Our Paulo Santos did a wonderful thing yesterday, showing how automated this action can be. Buying a few days after the announcement as a long-term hold is what he recommends.

It's this longer-term speculation which, like gold bugging, concerns me. As when USA Today writes that Apple may be the "one stock" you need to retire. Or when Steve Wozniak, who hasn't been an Apple insider since before I joined the tech beat in 1982, starts talking about Apple going to $1,000.

Fact is, Apple is not gold. The supply of shares is not fairly fixed and predictable. You can get burned by it. My view it that at a PE of about 15 it's close to fully priced, given the law of large numbers, and that if you put more than a gold-like 5-10% of your portfolio in the shares, you're really betting that earnings will accelerate. The recent big rise in the shares is nearly all due to the last blow-out quarter, and not all quarters will be blow-out quarters.

So not owning Apple is like shorting Apple. Owning a lot of Apple will give you angina each time there's a speculative flurry. The best bet is to own a bit of Apple, to buy only on dips like the one coming after tomorrow's announcement, and to save your worry for the rest of your portfolio.

Disclosure: I am long AAPL.