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  • Apple: Don't Miss This Opportunity  0 comments
    Jul 25, 2012 12:20 PM | about stocks: AAPL

    Apple's (NASDAQ:AAPL)earnings for Q3 came in below analyst expectations. The street was looking for about $37 billion in revenue according to Bloomberg Businessweek, translating to $10.35 earnings per share. Apple came in below (but above their own guidance) with revenues of $35 billion and $9.32 per share. This caused the stock to plummet after hours about 5.9% to $568.27. This, in my mind, presents an excellent buying opportunity. An opportunity that we may not get again. Apple is a dominant force that has continually drawn society to its products. So why did the stock have a massive selloff just because of one good, but not blow-out quarter? I don't have an answer to that. All I can do is try to provide you with my point of view, and show you why I think you should own it. Keep in mind that my views are based a long-term holding horizon:

    iPhone Sales:

    Everybody had heard that iPhone sales might not be up to par this quarter because people are holding out for the iPhone 5. So why didn't anybody listen? We have been spoiled quarter after quarter with blow-out results. This quarter's iPhone sales should not have been a focus. Maybe it was bad timing on the company's part with the reveal of the new iPhone. So what? Sales were 26 million, down from the estimated 29 million. They were up by 28% from the same quarter last year though, which is hardly a disappointment. And I don't think 3 million less iPhone sales in this quarter will hurt them long-term. It could even be a sign of how big of a hit the iPhone 5 is going to be. Last time Apple was below earnings estimates was the fourth quarter of 2011, which just so happened to be before the release of the iPhone 4S. The stock dropped about 5.6% the next day (sound familiar?).

    So just for fun, let's look at Apple's earnings without the iPhone. The 29 million iPhones (with accessories) sold that analysts were looking for would have brought in about $18.07 billion in revenue. Without that, the overall estimated revenue comes down to $18.93 billion from $37 billion. The real revenue without the real iPhone sales, is $18.8 billion. So take away the "disappointing" iPhone revenue, and Apple was only $130 million below estimated earnings. The point I'm trying to make with this arithmetic is that because of people holding out for the next iPhone (which I believe to be the case), earnings were seen as dismal. But take those away, and you have only a $130 million miss as compared to a $2 billion miss. In that respect, Apple would have been almost spot-on. And don't mistake an earnings miss for a decrease in earnings. A miss does NOT equal bad earnings. Most companies would kill to have Apple's earnings growth, but that's another issue.

    iPads and Education:

    The results of the iPad were really what I was looking for. This was the first full quarter for the new (3rd) generation. Numbers were solid, with 17 million units sold. That is a whopping 84 percent increase from the same quarter last year. This product has taken ahold of the markets quickly, and I think they will keep on rolling out of the stores.

    Schools are turning to technology like the iPad to assist in learning more and more. This is a trend that should catch on fast and continue to grow. They have even been helping special-needs students learn and communicate more effectively. Having just graduated high school, I have seen the transition to more and more technology in the school system and how effective it can be. Apple products are at the forefront of this revolution that has only just begun.

    Cash and Dividend:

    Everybody has heard of Apple's ginormous stash of cash. They added another $7 billion this quarter, bringing their total cash balance to a mind-blowing $117.2 billion. Investors have been begging for the company to put some of it to good use, and now they are. Apple will start paying a $2.55 per share dividend. This will open the stock up to a myriad of funds that were not able to buy into it because it did not pay out a dividend. I believe this factor is under-rated and could propel the stock even higher. With the kind of balance sheet Apple has, the investment risk is suitable for most investors. It will cushion them in the future against potential competition and litigation.

    Future:

    The use of mobile devices, cloud computing, data storage, etc. is expanding globally. While the economies of the world may be slowing at the moment, the use of technology is a long-term trend that will continue for years to come. With a market cap north of $500 billion, Apple will continue its monstrous growth. There is some tough competition, as there always is in the technology world, but Apple's innovation is top notch. Tim Cook has the vision and the team to carry forward the success that Steve Jobs started. With much anticipated future products like the iPhone 5, the rumored smaller iPad, and the mysterious iTV, I don't see why you wouldn't own the stock. With the success Apple has had in the past, I don't doubt that they will come out with more and more amazing products.

    The numbers were derived from the Apple F3Q12 conference call.

    Disclosure: I am long AAPL.

    Stocks: AAPL
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