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AAPL Update - No Emotions Please

|Includes:Apple Inc. (AAPL)

The emotions of the sellers are clearly in charge immediately following the latest report .. I will attempt to leave my emotions out of this commentary and present the facts that are contained in the recent AAPL earnings call transcript and quarterly report ..

APPLE reported revenues of $57.6 billion, up 5.7% year over year and slightly above many analyst estimates of $57.1 billion. EPS of $14.51 was above those same analysts $14.10 estimate. Gross margins ( the concerns from last year) came in 37.9%, , ahead of the 37.5% estimates. A note:- its the largest revenue number reported in a quarter by any Tech company , ever..

iPhone ASP (Average Selling Price) rose to $637 from $577 reported in the last quarter..

What the market doesn't like :

iPhone unit sales were light at 51 million vs. the expected 55 million. (remember that is the analysts estimate)

Guidance was below expectations with revenue growth down 1% at the midpoint and EPS flattish year over year. Once that was announced the Conf. call turned into an analyst feeding frenzy.. I will leave my thoughts out on Guidance presented by CEO's out of this commentary in keeping with my "no emotions please" title.. -LOL

IMO the issue here is the same one that I mentioned during last year when the stock was selling off day after day .. The market is jousting over pricing of the stock as it evolves from the Go Go growth days to a value oriented large cap story.. At $500 it sells at a PE Of 8 (minus the cash ).. Speaking of that cash. Apple's net cash & marketable securities account increased $12B to $159B. I believe that bodes well for more dividend increase and share buybacks in the future..

Unfortunately for shareholders , the sellers today are in force and the analysts aren't giving AAPL any benefit of the doubt as the downgrades are piling in..

Now, back to the "pricing " story and argument. It should be noted that AAPL has not and currently is not selling at a PE of 20-25 , a typical Growth stock multiple .. Therefore , even with the growth concerns, the sell off is a bit overdone.. But those still anticipating the go go growth are selling for sure.. The company is so large that it simply can't grow like it did in the past , hence anyone expecting that is getting out..

Other thoughts that I took away from the Conf. Call.

Revenue from China rose 20% Y/Y. This was BEFORE any incremental sales came in with huge distribution deal with China Mobile (NYSE:CHL) hit the ledger. The iPhone was officially launched on the carrier on January 17th and will start to show up in subsequent quarters. We can expect future improvement on that front.

Apple is choosing to only compete in the high-end segment, so ASPs(average selling Price) and margins are likely to remain good in the near term, but growth will remain challenging, and with that nearly every analyst started lowering their earning estimates for the year and into 2015.

I will temper my earlier enthusiasm when I forecasted a 650 price target for the shares this year.. However, I am not a seller here (fortunately my cost basis is lower than where shares are today) and suggest that investors stay the course. Let the market settle down and then decide whether the stock is for them ..

The approach that I may take going forward will be to write calls against the position after the stock stabilizes to take advantage of the volatility the shares offer with their large call premiums.. For those that don't employ that strategy , I still envision upside from these now depressed levels and although I will lower my sights for the shares I will wait before I decide on a new target for this year..

A simple increase of the Div. and another share buyback can drive the shares back to the level before this recent 40 point drop.. From a technical standpoint the shares can go lower to the 50 week MA around the $480 level before finding more support..

If That happens I just may add shares as a "trade" , so I certainly haven't given up on making money with AAPL..

Best of Luck to all !

Disclosure: I am long AAPL.

Additional disclosure: I am long numerous equity positions - all of which can be seen here..

Stocks: AAPL