Recent History Shows Apple Stock Performance Usually Worst In Q2

| About: Apple Inc. (AAPL)

I do not write about Apple (NASDAQ:AAPL) very often, generally because there is not much going on that the public does not already know about. I do however own Apple shares and, like most of you, I am proud of my cost basis. Anyway, it goes without saying that the recent selloff is a bit disconcerting. Apple has dropped off about $80 in little more than a month, and this equates to over 12% of their market cap (which, by the way, keeps them well over the $500 billion mark). Some pundits are claiming that Apple will be stagnant for the near future because of lack of product releases (iPhone 5) and will only continue to drop during this time. I do not believe this to be the case.

I am going to try offer some unique arguments to prove that things will be fine once the summer gets here. There are several reasons for this and I'll begin with the basic ones before getting to my thesis/observation. First, Apple products and their branding remain as strong as ever. iPhone 4S commercials are ingrained in our national culture and hopefully the old ones are put to rest sooner rather than later. iPads are still hot because Kindles and other readers are seen as subpar. Macs are still dominating, especially among students, despite their price tag. And Apple owns whatever is left of the personal music player market share. From a product line perspective, Apple is sitting pretty and all they need to worry about is playing down sales figures so their next earnings blow predictions out of the water.

My second point is that Apple is still relatively cheap. Below is a graph (from E-trade) with Apple's P/E overlaying their price. Right now shares are trading around 13 times earnings, which was the norm prior to the $400 levels. Apple has proven that it can gain market share during a recession, so a European banking crisis should not be too hard to deal with.

Speaking of the $400/share days, my final point is that Apple has had poor second quarters in the past and this is generally due to a run up in the prior quarter or investors expecting too much from earnings calls. Of course this has typically been followed with a breakout, the type that creates several new layers of price support.

So like a prudent investor, I track the performance of all of the stocks that I own and I was just looking back at the last time my Apple shares had gone down from one quarter to another. In 2011, the 1st quarter ended at $348 and the 2nd quarter closed at $335, down about 3.7%. The time before that was the previous year, 2010. In actuality the stock increased that quarter, from $235 to $248 (5.2%), but I had bought shares for a little too high that June and suffered a 5% loss. The quarters that followed each saw double-digit percentage gains. In fact, the 3rd quarter of 2011 was Apple's best in recent history outside of the 1st quarter of this year. All of this is represented graphically below.

The orange rectangles are the second quarters of each year shown. As you can see, if they were isolated on a graph, you would never know it was Apple. You'll recall the great 'flash crash' in May 2010, which is the single day, very high volume, line dropping to $200. Within the quarters there are no big earnings jumps and all have far more red than black. Going back five years there has always been a steady decline in earnings from Q1 to Q2. Obviously this is expected since the first contains holiday spending numbers, but it may play into the heads of some investors, even though they should only be looking at year over year figures.

The green boxes represent run ups that preceded earnings. Apple's 2nd quarter earnings are normally announced in the third week of April and in 2010 there was a jump from $200 to $250 leading up to it. There are not many stocks that can justify a 25% increase with a single earnings report and Apple proved this. The first three months of this year were even more impressive and earnings could not live up to the hype. But above all this chart shows that in the past Apple has rode into the 3rd quarter guns a blazin', so even though the old adage may say 'sell in May and go away,' buying right now seems awfully appropriate.

Disclosure: I am long AAPL.