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Apple's AAPL tough here. So let me make it easier. When you have a company that trades at $600 and it goes down $30 or $40, people freak out. That's a huge decline.
But don't let it fool you. If Apple were a $60 stock, not a $600 stock, and it fell $4 you wouldn't freak out, particularly after what was, indeed, a big disappointment. Basically, the stock's been dinged, as it should be when numbers have to be cut and the future seems more cloudy.
So why not ring the register? Why not say enough is enough, Apple has lost its momentum, lost its mojo and it is time to move on?
Here's the problem: Apple is selling at 12x next year's earnings. It is among the cheapest stocks I follow, offering phenomenal growth for a price rather similar to many cyclical semiconductor stocks. It is much, much cheaper than any packaged-goods stock I follow, and the food and household products companies grow very slowly, and many have become inconsistent in their earnings reports.
Now, there were real concerns raised on the conference call. Given that Apple's got about 24% of its business in Europe and it sells expensive devices, you are going to see a continued slowdown -- and we don't know how much of the reduced guidance is being caused by Europe's woes. Second, Samsung, which, oddly, provides key chips for the iPhone, has an offering that many consider competitive if not superior to the iPhone. Third, we have no idea whether the big telco carriers like AT&T T , Sprint S and Verizon VZ will continue to subsidize users who want Apple phones.
But let's spin everything on its head. We now have guidance that is so reduced that I have a hard time believing it can't be exceeded. We have a product transition for the iPhone that is so major that you have to believe people will hold back buying the iPhone 4S. One of the remarkable hallmarks of Apple is that the new iterations tend to be worth waiting for.
Plus, it isn't as if Apple is just a smartphone company. You have the new PCs still driving sales in a group that's doing anything but. You have the iPad becoming the standard for businesses and students. It wouldn't surprise me one day if textbooks don't go the way of magazines and newspapers in the wake of the iPad. Parents will love it. The iPad's cheaper and better on the kids backs! Finally, there's the possibility of a novel iTV, one that incorporates Siri technology to speak to the TV and tune into the station you want. These innovations and products are all ahead of you, and they are worth the possibility of the stock going lower for now before advancing later this year or next.
I will reiterate that I believe you should own Apple. You don't rent it, and you don't trade it. Believe me, if it were $55, you'd most likely agree. So don't be intimidated by the price and hold on for the ride. It will be worth it.