Where Does Apple Go From Here?

| About: Apple Inc. (AAPL)
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Just to nip in the rear cat calls that I am self-serving, I wrote about being long Open Table (NASDAQ:OPEN) last year and, when it comes to Apple (NASDAQ:AAPL), I could not hold Andy Zaky's athletic supporter. That said, this was my take on the company and stock ahead of last month's report:

If Apple crushes earnings - and I mean an Andy Zaky-like crush - the stock approaches and maybe hits $450 on Thursday. From there, it sustains. If Apple merely meets, has a nice or decent quarter or, worse yet, misses, AAPL plummets through $400 on Thursday and wallows around that level for at least a few months.

Investors want to see that iPhone 4S and iPad 2 have served as strong bridges to the forthcoming iterations of each device and iTV. If momentum slows, even a bit, the street, for better or worse, will punish the stock.

And AAPL has sustained. It pulled back every so slightly, but not quite enough to provide a suitable point of entry. But, maybe, as long-term investors, we need to stop thinking about points of entry when it comes to AAPL.

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Let's consider the situation first from an investment perspective and then from Apple's amazing story standpoint.

How To Play It

If you're long AAPL, particularly with a cost basis anywhere near or under $400, you're probably - with all appropriate disclaimers and qualifiers accounted for - in pretty darn good shape. If you're not long or nursing gains from the $425-$440 area, you have a choice to make. Dealing with the investor who is not long should shed some light on the person's situation, where relatively modest on-paper gains exist.

Most people at least entertained the idea that AAPL would experience a meaningful, even if temporary, pullback after earnings. It really has not. It touched a 52-week high of $458.99 yesterday and only spent a sparse bit of time as low as the $443 area for a couple of days after earnings.

As always, I play the role of an investor who spends way too much time eating, sleeping and drinking the stock market. I dream about it. I wake up at three in the morning, unable to return to sleep, excited about the day of writing and researching that lies ahead. Take what I say as the perspective of a man not only obsessed, but who loves what he does and is lucky enough to be able to share it with a solid and sophisticated audience. Consider my ideas to, possibly, in some small way, inform your decisions.

I'm not sure you can go wrong just buying the bloody stock, at market, right now. Is there anybody in his or her right mind who thinks this stock does not have $500 written all over it by the end of the year? I am not much into P/E ratios, but, comparatively speaking, AAPL's should be between 50 and 100 now and looking forward. At least. So what if it pulls back. Go for a picnic if you cannot stand your likely temporary on-paper loss.

If you've got the $45,000 sitting in your account, however, for 100 shares of AAPL and you would not feel crushed to miss out and "have" to buy fewer than 100 shares or come up with an extra thousand or two to form a nice even lot, consider selling a put.

As of Thursday morning in Santa Monica, the AAPL March $450 put brings in $980 at a bid price of $9.80. On the AAPL February $450 put, you could collect $410. Not too bad.

Using the March example, if AAPL breaches $450 on or before options expiration day, you could be "forced" to purchase 100 shares of the stock for every contract you sold at $450 per share. However, because you received that $9.80 premium, the effective price you pay equals $440.20. Two obvious risks exist here.

One, AAPL tanks. You're stuck with a buy at $450 (or $440.20, depends how you choose to look at it because you could have pulled that income from your account and spent it on baseball cards) and a stock at, say, $420. That's not a whole heck of a lot different from buying the stock at market today and watching it tank. Of course, being short a put, to some extent, locks you into the trade, no doubt.

Two, AAPL runs. You bought the put with your eyes on getting long. While it's great that you collected income on the option trade, you now must enter the stock at a higher price or wait for a pullback that might never come. And the way things are looking for Apple, it really might not come this time.

The Story

Apple did nothing short of absolutely crush it on its last report. It would have been completely forgivable if iPhone 4S and iPad 2 sales did not provide quite the bridge to the future that they did over the holidays. A modest beat by Apple could have sent the stock down, but it would not have been an omen to the end of the growth story. In Apple's world, it would have been a temporary slowdown or a minor roadblock. For most other companies, a modest beat would have been received as a monster quarter.

Instead, under Tim Cook, the Apple story is stronger than ever. In the face of word that Steve Jobs couldn't set conviction aside for the sake of a Girl Scout, Cook makes the socially responsible moves that, while potentially dicey business-wise, are the absolute right way to go. But, it's more than that. Consider the pipeline his company now flawlessly transitions through.

Apple Poaches Another Xbox Marketing Vet (February 2)

iPad 3 could come next month (February 2) {And even if it does not, it's on its way and it will, undoubtedly, dominate}

IDC: iPhone Is No. 3 Worldwide (February 2)

And this tidbit, relative to other lesser speculation that persists, flew under the radar.

Maybe It's An Apple Cable Box Instead (February 1)

I consider this sensible speculation for several reasons. First, it helps break down an obstacle I am not even sure Apple can overcome - securing content. Second, while it's difficult to question anything Apple does, they've never said, flat out, we're building a television. Jobs only said, paraphrasing a bit, that he finally figured out the living room. It makes so much more sense, however, for the end product to be something other than a television.

Under this scenario, Apple enters the advertising space with force, while allowing consumers to keep their current service (cable, satellite, a cut cord, whatever) and opt for an Apple cable box that revolutionizes the video (and maybe audio) entertainment experience. This keeps the old guard, ranging from Disney (NYSE:DIS) to Comcast (NASDAQ:CMCSA) to DirecTV (NYSE:DTV), happy. Apple's not going after their turf or doing outlandish things like bidding on English Premier League soccer rights. Instead, the company prompts the entire media world to want to forge partnerships with it.

If you provide content or deliver it, an Apple cable box (not the current Apple TV) is - and this is an understatement - a value add. Just like AT&T (NYSE:T), Verizon (NYSE:VZ) and Sprint (NYSE:S) must have iPhone, the above-mentioned types will have to make this device available to consumers. Who knows? In the process, Apple might be able to fleece content deliverers (and maybe some providers) as badly as it does the wireless companies.

However it shakes out, a frustrating period that really should not have been all that frustrating (just look at the chart) might have just come to an end. Apple built a strong bridge between iPhone 4S and iPad 2 and iPhone 5, iPhone 3 and whatever it ends up doing in the living room. I don't think the company even thinks about looking back. And I don't see the stock doing much of that either.

Disclosure: I am long AAPL, VZ.