Jim Cramer Has Reversed On Apple Because He Doesn't Understand It

| About: Apple Inc. (AAPL)
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Apparently Jim Cramer is concerned about Apple. He no longer believes that the stock can be bought on dips. According to Cramer, Apple is no longer at the top of the "going higher cohort." The reason why people like Cramer jump off the Apple investment vehicle is because they don’t understand it. They don’t understand the underlying variables that move a stock that trades as its own asset class.

For those who do get it, there is no better investment opportunity on Wall Street. If you want to effectively invest in Apple, you need to understand and identify the impact of liquidity, hedge fund action, fundamentals, rumors, market share, trading ranges, weekly options, seasonality and catalyst precedent. At any given time, one of these variables will dictate the short-term action.

For those who are in tune to that action, the results can be hugely profitable. Misinterpretation arises when someone like Cramer supposes that one of these variables supersedes the fundamentals. Such short-term misrepresentation of Apple happens every day.

From a fundamental perspective, it’s important to remember that we live in a world that is evolving by the day. Ten years ago the cell phone turned from a want to a need. Four years ago Steve Jobs showed us what a smartphone could really do as he ushered in a new era of mobile app development and touchscreen multi-function technology. Today my iPhone serves as my iPod, my camera, my email device, my mobile web browser, my Twitter/Facebook interface, my kids’ primary gaming device, my personal assistant, it houses my collection of apps and oh, I almost forgot -- my phone.

Consumers have become so obsessed with their smart phones that the device now rates on par in terms of importance with traditional must-have items like clothing and food. Although Apple only commands 4% of mobile market share, Canaccord Genuity’s recent report reveals the company took 52% of the industry’s profits in the third quarter of calendar 2011. With carriers like AT&T unable to keep the free version of the iPhone 3GS on shelves in Q4, it is likely that Apple will further improve those market share metrics in the quarters to come; when you invest in Apple you are investing in the future of the smartphone sector. Apple’s one-of-a-kind pricing power is what has propelled it to become its own asset class.

When you invest in Apple, not only are you investing in the future of mobile computing, you are investing in the future of China as well. It’s interesting that Jim Cramer tried to twist the words of Apple executives to try and invent a fear of saturation occurring because Apple was able to ramp its supply chain in balance with demand. Seriously, Jim? You’re worried about saturation instead of focusing on Tim Cook’s theme from the conference call that he has never seen a growth opportunity as large as China in his lifetime. I’ll go with the rising Chinese middle class on that one.

When you invest in Apple, you are investing in the future of iCloud. After a recent meeting with Apple executives, analyst Ben Reitzes dubbed iCloud the "sneaky" product launch of 2011, because of Apple’s internal confidence regarding the platform. iCloud is the most significant upgrade to the Apple ecosystem since the launch of the App Store with the iPhone in 2007. Reitzes believes that iCloud will lead to new gadgets like an improved Apple TV and others that "we haven’t thought of yet." The Steve Jobs DNA of innovation is alive and well within Apple because of the foundation that he built. The Apple tech trend is in place for years to come.

With Apple’s tremendous prospects for growth, why do investors like Jim Cramer jump ship? In large part it’s because they have a difficult time identifying the underlying reasons for the stock’s volatility. For example, read our economictiming.com post from October 21:

Historically, even if Apple has a great October earnings report, the stock will sell off in the aftermath of the report and form an early November low that turns into a great buying opportunity for a run into the day after Thanksgiving...Black Friday. When does this low usually bottom? In 2010 it happened on November 17th, in 2009 it was November 3rd, in 2008 it was November 21st, in 2007 it was November 13th, and in 2006 it was November 6th. Today’s hedge fund trading activity on a positive market day gives us hope that we will have the opportunity to buy Apple somewhere between $350-$370 over the next three weeks. The average run over the past five years from the November low to Black Friday is 12%.

We’ve been sitting on an 80% cash allocation waiting for this opportunity to present itself, and sure enough, it’s happening like clockwork. As the sell-off materializes, sentiment suffers and the average investor is scared into selling at the bottom before buying back in at the top. We do the opposite. This November selloff is arriving as so many before it -- on the heels of false supply chain reports that hypothesize weak iPhone or iPad sales.

The truth is that the Apple supply chain has grown so complex that it is absolutely impossible to make sales assumptions from one small segment of the supply chain. Analysts make faulty assumptions every quarter, at about the same time, based on supply chain sources. As soon as this bottoming action matures, we will be raising AAPL allocations once again. Stay tuned. Apple fundamentals remain firmly intact, and this stock remains the most sure bounce on Wall Street.

Disclosure: I am long AAPL.