Investment Contrarians

Should You Be Worried About Apple?

By for Investment Contrarians |

Should You Be Worried About AppleWhat the heck is going on with Apple Inc. (NASDAQ/AAPL)? The stock has corrected 26% since trading at a record high of $705.00 on September 21, and based on my stock analysis, Apple has made a chart reversal in a bear market.

While the price chart shows two major downward moves, don’t panic yet, but be careful.

I still consider Apple one of the best stocks in technology, but the company is clearly facing increased competition in the lucrative tablet, mini-tablet, and smartphone markets. The stock was recently downgraded, but sales in China are encouraging after Apple launched its “iPhone 5” and saw over two million units sold from December 14–17. (Source: “iPhone 5 First Weekend Sales in China Top Two Million,” Yahoo! Finance via Business Wire, December 16, 2012.) The iPhone 5 will be sold in over 100 countries by year-end.

Its valuation is attractive at 9.04X its estimated fiscal 2014 earnings per share (EPS) consensus estimate of $57.83 per diluted share, according to Thomson Financial. Its price/earnings-to-growth (PEG) ratio of 0.5 is bargain-cheap, based on my stock analysis.

The chart is bearish, showing the stock’s recent break below the 50-day moving average (MA) of $578.67 and the move below the 200-day MA of $597.41, which represents a bearish “death cross,” based on my technical analysis.

Apple Inc Chart

Chart courtesy of www.StockCharts.com

My stock analysis is that there are clearly some concerns that Apple may not be able to continue on its merry way. Chief rival Samsung sold a staggering 97 million mobile phones in the third quarter, well above the 23 million iPhones sold by Apple, according to Gartner. (Source: “Samsung Extends its Lead Over Apple,” Forbes, November 15, 2012, last accessed December 18, 2012.) Forbes suggests that the success of Samsung is due to its much broader assortment of available phones versus a singular phone for Apple.

I’m not ready to throw in the towel on Apple, and in fact, my stock analysis is that any major weakness could be an investment opportunity to accumulate shares at a price not seen since March 2012.

Apple makes much better margins on its products, and with the possible entry of a cheaper iPhone, it could gain some market share from the likes of Samsung, according to my stock analysis.

My stock analysis is that Apple is the king of the lucrative tablet market, which is estimated to rise to around $31.9 billion this year, with over 100 million units delivered, according to Visiongain. Based on my stock analysis, the market may be much bigger, as evidenced by the faltering demand for personal computers (PCs). By 2016, it’s estimated that about 360 million tablets will be sold, according to IHS iSuppli.

But Apple cannot let its guard down, according to my stock analysis. We are seeing the launch of many really good tablets, including the “Surface” from Microsoft Corporation (NASDAX/MSFT), Samsung’s “Galaxy,” and the “Nexus” from Google Inc. (NASDAQ/GOOG).

And what I feel is an excellent strategy is Apple’s launching of its “iPad mini” to compete with the small-tablet market, which includes competitors Amazon.com, Inc. (NASDAQ/AMZN), with its “Kindle” tablet, and Barnes & Noble, Inc. (NYSE/BKS), with the “Nook.”

For the time being, my stock analysis is that Apple is still king of tablets and smartphones, but the marketplace is getting extremely crowded.

The decline in share price seems like a bargain, but the risk is that when a stock has advanced as much as Apple has, there’s still the risk of more downside moves.

Proceed, but be cautious.

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  • zlop

    Was up on dead cat covering.
    iApple juice drinkers are finding out, better eat real Apples.