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    • The long awaited, much hyped Apple earnings report came out last night and offered a little something for everyone, particularly investors who've been arguing that the company has much bigger problems than a slumping stock price.

      The Good

      Apple (AAPL) reported earnings of $10.09 per share on revenues of $43.6 billion. Wall Street analysts had been looking for $10.07 on $42.3 billion in revenues. It was a slight beat of estimates that had fallen nearly 14% in the last month.

      The Bad

      * For the current fiscal period Apple lowered its revenue forecast to between $33.5 and $35.5 billion, well below the Street's estimate of $38.2b. In the same quarter in 2012, Apple booked $35b in sales and earned $9.32 per share.

      * Gross margins also missed expectations at 37.5%, compared to expectations of 38.5%. In the same quarter last year, Apple's gross margin was 47.4%. The company says it expects margins in the current quarter to be between 36 and 37% compared to 43% in the quarter ending June 29 of 2012.

      * Splitting the middle on revenue and gross margin guidance, Apple would gross profit of $12.6 billion vs. $15 billion last year. Unless the company finds a score of ways to cut expenses -- and they don't seem to have any plans to do so -- net income would come in somewhere near $7.5b or a drop of 15 - 16%, year over year. Assuming the number of share outstanding remains constant (a generous assumption), Apple would earn in the vicinity of $8 per share in the current quarter, compared to $9.30 last year.

      The average analyst estimate for this quarter is $9.08. Expect that number to fall in earnest -- if not this morning, very soon. Apple is now running well below results that would get the company anywhere near the average estimate of $43.66.

      * The company has spent $2.1b on R&D over the last 6 months, putting it on pace to spend around $4.2B for the year. To be generous, we'll say Apple's expected R&D expenditures are about 2.5% of revenues. To compare, the percentage of revenues used for R&D at Microsoft (MSFT), and Samsung are about 11% and 6% respectively.

      Despite the questions raised by this underinvestment in new products, Apple stubbornly refuses to discuss timing on new product roll-outs. "Our teams are hard at work on some amazing new hardware and services we can't wait introduce this fall and throughout 2014," CEO Tim Cook said vaguely on last night's conference call.

      Pressed further, Cook said "I don't want to be more specific, but I'm just saying we've got some really great stuff coming in the fall and all across 2014."

      Cook's vague comments caused Apple shares to drop 5% by the end of the call, taking back all of its after hours gains. "It was very disappointing, I think it's time for Tim Cook to pass the baton," says Jeff Kilburg, founder & CEO of KKM Financial and a CNBC contributor, in the attached video. "I think the buyback was encouraging; at least they gave us something to bite on."

      Read More »

    • Don’t Fall for the Pullbacks, Now’s the Time to Buy: Haverford’s Smith

      By Pras Subramanian | Breakout – Wed, Apr 24, 2013 7:24 AM EDT

      Short-term pullbacks due to false tweets aside, some market watchers will tell you that like a spring shower, a small market dip every now then tends to refresh a bull market. Others see a potential pullback as a dark cloud or sign of a deeper downturn correction.

      One money manager who sees a buying opportunity in the face of strong year-to-date gains is Hank Smith, chief investment officer at Haverford Trust. As for that slight pullback that spooked investors at the start of the second quarter, Smith points out, “I don’t think anyone should be surprised, markets don’t go up in straight line," he says. "If we do have a [another] pullback or correction, it won’t take away the case that we are in a long-term bull market, we are not in a cyclical bull that's part of a secular bear market.”

      The market has erased losses incurred earlier in April, taking the S&P 500 (^GSPC) back to flat for the month. The bullish case that Smith sees for the current market going forward is contrarian, namely that “we are a long, long, way from optimism and euphoria; we are still in the skeptical and anxiety phase of the market in terms of psychology, plus we think the fundamentals look reasonable in here.” This leads Smith to unequivocally state that he’s buying.

      Read More »

    • A year ago President Obama signed the so-called STOCK Act. The point of the act was to allow the public to see for themselves if members of Congress and their employees were trading on material, non-public information. "The STOCK Act: Bans Members of Congress from Insider Trading" was the bolded headline at the top of a lengthy and self-congratulatory press release.

      Last Monday the White House website took the guts out of the STOCK Act in one run-on sentence under the headline "Statement by the Press Secretary on S. 76." Those so inclined are invited to read the memo themselves. The gist is that disclosures will no longer be practically available for all employees but only for the elected officials, which means staffers, lobbyists, employees, aides and anyone who works for or is close to a serving politician can do whatever they want. Corrupt officials could theoretically still dish insider info with little fear of discovery — it's just hard for them to trade off of the information themselves.

      The idea of transparency is to remove doubt about conflicts of interest and malfeasance, real or imagined. When the rules are quietly changed to such a degree, it defeats the purpose entirely.

      Hank Smith of Haverford joined Breakout to discuss this backtracking. "We only have ourselves to blame because we're the ones voting these clowns in," notes Smith in the attached video. It's a fair point, but the government doesn't make it easy for the public to see these flip-flops. The STOCK Act passage was on the front page. When it got de-fanged, the announcement was so buried that only the most hardcore of wonks could find the news.

      Read More »

    • When earnings expectations are as low as they are for Apple (AAPL), results don't get "released" as much as they escape captivity. Even if Apple sandbagged its guidance in order to make the actual numbers look good, the company is almost certain to report shrinking year-over-year profits for the first time in more than a decade.

      According to Yahoo! Finance, Apple is expected to report earnings of $10.07 per share on $42.6 billion in revenues. In the same quarter last year Apple earned $12.30 a share. Negative earnings growth means Apple's much cited P/E of 9 isn't all that it would seem.

      Hank Smith, CIO and VP of Haverford, is long Apple and says investors can win big tonight with just a little help from CEO Tim Cook. Smith says Cook can send shares higher one of two ways.

      First, the company can come up with a more creative capital allocation strategy in the form of buybacks or a dividend hike. Smith reasons that Apple is better off buying shares with the stock at $400 than when it was $300 higher. Unfortunately Apple already started a $10 billion buyback program last October with the stock in the mid-$600 area. Suffice it to say, the program did little to support the shares.

      Smith would much prefer a boost in the payout to shareholders. "Dividends are very real and the most tangible statement a company can make about the confidence in their current condition and future prospects," he states.

      Read More »

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    About Breakout

    Breakout is Yahoo! Finance’s daily all-out, roll-up-your-sleeves, dive-in, interactive investing show, offering fresh segments throughout the trading day. If you love making money, if you want to protect what you have, if you’re passionate about understanding these crazy markets, you’re in the right place.

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