Apple's Post-Earnings Dip Was An Adjustment, Not An Exit

Oct. 21, 2011 11:08 AM ETApple Inc. (AAPL)16 Comments
John Tobey, CFA profile picture
John Tobey, CFA

Baseball photoStrike one was Apple’s (NASDAQ:AAPL) loss of Steve Jobs. Strike two is Apple’s financial report, while dazzling, coming in below expectations. Strike three? The pitch is on the way – but more about that later. First, let’s discuss why those first two items are clearly strikes.

Why the Loss of Steve Jobs Really Matters

I have had a change of heart on this subject. When Jobs' health conditions became serious, I wrote about what happened to Disney (DIS) when Walt Disney died. At that time, the company and its stock actually did very well.

Then came my three-step conversion:

1. Bullish on Apple

Following the market’s August drop, I wrote about Apple’s exceptional value on August 24. The following day, after Jobs stepped down as CEO and the stock sank, I reiterated my Walt Disney thoughts.

2. Doubt

Having written about Apple stock being an “impossible dream,” I began to doubt my view of Apple’s value. It’s one thing to have a neglected stock lag and become a great value, but how could Apple be in that position with both its notoriety and its market cap position? (September 2).

3. A Different Vision

Now I see AAPL’s valuation as being reasonable -- not a bargain, given the loss of Steve Jobs and the risk it creates. Beyond his high skill at innovation, the company is now missing:

  • His knack at deciding which innovations to pursue. Many inventers can create new stuff, but Jobs could also determine what would be popular -- commercially viable.
  • His talent at getting it right first. Most (nearly all?) new, popular products originated elsewhere. Yet, here is Apple with an exceptionally successful record of creation, implementation and fulfillment. That accomplishment is especially remarkable because it happened with previously unknown products and Jobs able to decide what people would want without the help

This article was written by

John Tobey, CFA profile picture
I am the founder and editor of Investment Directions. My career has been managing and consulting to multi-billion dollar funds. Using the widely accepted “multi-manager” approach, I have worked with top investment managers throughout the country, gaining a high level of expertise. My career has spanned many market environments, and I have hands-on experience searching out opportunities and avoiding risks in all of them. I now devote my time to Investment Directions, with the goal of helping investors further their understanding and improve their investing skills. I am currently serving on: The AAUW Investment Advisers Committee and The City of Vista Investment Advisory Committee.

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