Timing Your Apple Entry Points
Go talk to the guys who were loaded for the "sure thing" earnings report last October when Apple dropped from $424 to $390, then to $380, then to $370, then to $363 right when it should have been on its holiday stock run.
The uncertainty of an earnings report is rarely worth the risk. As investors, we assume that earnings will reveal the fundamentals of a company, but that isn't always the case. Quarterly reports are influenced by the calendar and the calendar can cause investors to misinterpret the data.
There is no bigger Apple bull on the street than I am, but I do recognize the need to be in tune with short-term momentum that can be influenced by the calendar.
The standard that Apple set in the fourth-quarter with 37 million iPhones sold was due to the pent-up demand caused by the delay in the iPhone 4S. That number is the main reason why current consensus estimates are in the 32-million-to-33-million unit range.
To put this in perspective consider that in October Apple announced sales of 17 million iPhones, in July they sold 20 million, and last April they sold 18 million. The jump to 32 million is not a sure thing.
Can Apple do it? Of course it can. Will Apple do it? Nobody knows. All I know is that without pent-up demand for the 4S it's very possible Apple will come out with a number below 30 million and the stock could drop below $550 in a day. That's a risk I'm not willing to take.
I chuckled when I read a defense of Apple from analyst Shaw Wu this morning as he tried to tell investors that the concerns over slowing iPhone momentum are overblown. He discussed the intra-quarter benefits of adding China Telecom and 21 additional countries. He mentioned that the Verizon weakness isn't significant because Verizon is one of 150 iPhone carriers.
The reason why I chuckled is because his own estimate was raised from 28.2 million units to 29.5 million. Does Wu realize what would happen if Apple hit his lowball number?
I agree iPhone units could come in between 29 million and 33 million units but when a stock has risen $200 in the quarter there is no appetite to merely meet expectations or to come in below expectations, as Apple-defender Wu suggests.
For the stock to rocket higher in the short run iPhone sales need to be over 35 million.
Why are we not completely out of Apple in the portfolio? Because the over-35 million is possible. But the fact remains that we just don't know. Apple momentum has increased in downside volatility which opens the door to a significant sell-the-news reaction.