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Apple: Is It Time To Buy?


After throwing money at the market for over 10 years now, I know full well that some of the best trades or investments don't involve timely execution or well-priced entries, but rather sitting on my hands and doing nothing at all.

With all the excitement and buzz surrounding Apple (Nasdaq: AAPL) and its 7-for-1 stock split last week, I thought best to let the market digest a full week of trading, commentary and analysis before even discussing if the stock is still a viable investment after its "change."

In the past, I would have looked at the first day of trading post-split as a great entry. One could make the argument that the stock would irrationally be seen as "cheaper" ("more accessible" would be closer to the truth), and a wave of buyers would be waiting to snap up shares upon the open. 

That kind of emotional sentiment has certainly pushed up forward-splitting stocks in the past, despite the lack of change in intrinsic value. (At the time of the split announcement on April 23, my colleague David Sterman made that same point.) 

However, with how closely the stock is followed by the media, how volatile it has moved in the past, and how strong it rose going into the split (more on that later), I thought best to let it be for a few days.

As it were, the stock opened up at $92.70, peaked at $95.05 the next day, and closed the week at $91.28. No stampede to $100, and no sell-off to $80... all in all, a somewhat lackluster week.

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  Apple's agreement to sell its products in China through China Mobile will likely help its future growth.  

Save a few quick traders who darted in and out for a profit, investors who bought in on Monday likely ended the week down. Hindsight will say that the real trade would have been to buy AAPL at the time of the split announcement. 

As most of us are without crystal balls, however, it's time to make a case for AAPL going forward. 

We've had the opportunity to filter out some noise and digest a week or so of post-split trading, so what can we expect from here on out? Let's take a look at some of the factors that will help -- or hurt -- Apple's stock price in the near and long term. 

First off, from a fundamental standpoint, Apple is still very much poised for future growth. A low price-to-earnings (P/E) ratio, increasing revenue, a strong cash position and high gross profit margins helped prompt the split in the first place -- and still make a strong case for long-term appreciation. 

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Apple's agreement to sell its products in China through China Mobile (NYSE: CHL) will likely pad those numbers positively as well. (In fact, my colleague Marshall Hargrave recently identified AAPL and CHL as two of the three best plays on the world's largest telecom market.) China Mobile's reach is expansive, catering to three times more subscribers than AT&T (NYSE: T) and Verizon (NYSE: VZ) combined.

For shareholders, Apple announced in April that it would be increasing both its dividend and buyback program. The latter expanded from $100 billion to $130 billion, and the dividend received an 8% bump, now paying $3.29 every quarter. Both reveals increase stockholder value and were key in contributing to the rise in stock price before the split.

As the latter half of the year approaches, we will likely be privy to the next wave of Apple's product launches (the current crop of rumors includes the unveiling of an iWatch and an iPhone 6 with two screen sizes). Along with the company's recent purchase of Beats Electronics, Apple could make both consumers and shareholders happy on the hardware front. Software-wise, AAPL unveiled the next generation of its iOS operating system this month, and the Beats purchase added another digital music marketplace to Apple's offerings with its streaming music service.

One final note about AAPL's post-split price: The stock is now at an acceptable range to be included in the Dow, if such a shuffle were to occur. Although much broader and better-weighted indices exist (such as the S&P 500), the Dow is still often used (mistakenly, in my opinion) as the barometer for whether "the market" was up or down on the day. Apple's new price puts it in line with the average price of other Dow components (though one of them would have to drop off the list before AAPL can be included). 

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Risks to Consider: Investors and traders have been quick to turn on Apple in the past (see the drop in price after the company's earnings report in January, despite issuing a beat). Keep rumors in mind and concentrate on factual catalysts when digesting any news for new or existing positions of AAPL.

Action to Take --> Now that some of the emotion and fanfare has died down, we should resume focus on the drivers that will spur growth in stock price when considering AAPL as an investment. All glitz and glamour aside, Apple is still a strong company with continued growth potential -- any dips from here on out could be great opportunities to accumulate.

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