What’s the Matter with Apple?

Matter with AppleWhat the heck is going on with Apple Inc. (NASDAQ/AAPL)? The stock has corrected 25.5% since trading at a record high of $705.00 on September 21.

Don’t panic yet, as my stock analysis is that we are seeing some portfolio adjustments and profit-taking by institutions and retail investors prior to the year’s end.

Fundamentally, nothing has changed, based on my stock analysis.

I still consider Apple to be 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 does have an attractive valuation of nearly nine times its estimated fiscal 2014 earnings per share (EPS) of $58.66 per diluted share, which is Thomson Financial’s consensus EPS estimate. Its price/earnings growth (PEG) ratio of 0.5 is a cheap bargain, based on my stock analysis.

The chart shows a challenge at the 50-day moving average (MA). Failure to hold could see a breakdown of the upward trendline, followed by a potential downward move to the $400.00 level, based on my technical analysis.

Apple 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. A recent Forbes article suggests that the success of Samsung is due to its much broader assortment of available phones versus Apple’s single phone. (Source: “Samsung Extends its Lead Over Apple,” Forbes, November 15, 2012.)

I’m not ready to throw in the towel on Apple; 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, based on my stock analysis.

My stock analysis is that Apple is king of the lucrative tablet market, which is estimated to rise to around $31.9 billion this year with over 100 million units delivered. (Source: Visiongain, last accessed November 16, 2012.) Based on my stock analysis, the market may be much bigger, as evidenced by the faltering demand for personal computers (PCs). (Read “Trust Me: Declining PC Demand Is Killing Chip Stocks.”) By 2016, it’s estimated that about 360 million tablets will be sold. (Source: HIS iSuppli, last accessed November 16, 2012.)

But my stock analysis suggests that Apple cannot let its guard down, as we are seeing the launch of many really good tablets, including the “Surface” by Microsoft Corporation (NASDAQ/MSFT), the “Galaxy” by Samsung, and the “Nexus” by Google, Inc. (NASDAQ/GOOG).

I feel that Apple has an excellent strategy: the company will market its “iPad mini” to compete with the small-tablet market that includes competitors Amazon.com, Inc. (NASDAQ/AMZN), with its “Kindle” tablet, and Barnes & Noble, Inc. (NYSE/BKS), with its “Nook.” Yet it will not be easy for Apple, as the iPad mini’s price point of $329.00 and up is more expensive than its competitors’, including the $199.00 “Kindle Fire” made by Amazon.com and Google’s $300.00 “Nexus 7,” powered by “Android.”

For the time being, my stock analysis tells me that Apple is still king of tablets and smartphones, but the marketplace is becoming 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.

  • William GUNNING

    Seeing how the Nexus7 is destroying the iPad mini in sales almost two to one the Projected profits of Apple may he a little off. On the phone front, with the HTC Droid DNA and the upcoming Samsung Galaxy S4 (due out this spring) I'd say the iPhone may be in a little bit of trouble, especially if the rumored features and specs of the S4 are true with its the flexible screen and 8 core ARM chip.

  • Pgustafs

    Apple, once having a reputation for "products that just work", has fallen down the slippery slope of bad code. Sadly, we are now seeing products that are just plain frustrating. Maps was one thing. Just try to airplay CBS.com (or any .com) movies from ipad3 to appletv3, in full screen (1080p). Troubling errors that you woundn't have expected from Apple. Don't get me wrong. There are plenty of good things, but sadly the number of flawed things are on the rise.

  • A. Van Cleave

    So, Samsung sells 97 million phones, Apple sells 23 million phones. Apple doesn't include "standard technology" like NFC, DLNA, etc. and you think Apple is King of the Phone??? What???

  • tjmajka

    The beauty of earnings is that it has nothing to do with a companies future. Perhaps you should look at the lack of innovation within Apple, and the sales of competitors offerings as well. Apple has become old, and over-ripened. They have past their heyday and can't compete on any level with the current market offerings. Even the die-hard Apple fans are starting to become annoyed, as their old docks and cables won't connect their new phone but are still needed for recently purchased I-Pads, etc. Nearly every other modern tech device uses micro-USB as its charger/data connection. One wire, all devices no matter the brand, except of course Apple. Also heard are rumblings of "why is a 16 gig upgrade to my phone a different model costing $200.00 more?", when almost all other smartphone manufacturers include a micro-SD card slot for free and swappable batteries? The slot allows a possible 128 gig upgrade for under $75.00 delivered to your home. Google's Chromebooks are soon to thwart I-Pad purchases the way Android and W-8 phones are killing i-Phone sales today, prompting Apple to promise a cheaper I-Phone model in the works. Problem is it will suffer from the same compatibility and expansion issues as all I-Phones do, and the products competing at it's price point already outperform the current entry level I-Phone which costs much more and involves a hearty secondary investment in accessories! Bottom line is that the bottom line of Apple today does not indicate it can sustain it's current profitability going forward. If you mean to make a short term buck I will go with your assessment. I'd say the long term investor might want to look elsewhere in tech for a stable future, because from a tech guys perspective, Apple is a sinking ship who does not have it's finger on the pulse of where our tech needs are moving. Unless real innovation proves to already have been in the pipeline and is nearly ready to release from them, even the bargain basement offerings from other manufacturers will have surpassed Apple in the hardware arena at least, by mid 2013.

  • ReubSolo2585841

    Indeed…. currently. But as three of my college buds would kindly express to you. Why waste all of your money? I just cashed in an old phone and upgraded to Android based products to prepare for this years wave of new apps we expect to see. Not because we college students don't like Apple… but we're wary of their disappointments. There will be extensive innovation with other companies…. but Apple seems to be displaying a severe lack of ingenuity. The coolness fads… and even iTunes we see falling. Younger generations are turning to social streaming websites like Spotify and Grooveshark where music is shared… fun… and social and did i mention almost completely free. Besides. The change in Apples connector was admitting defeat… Apple to all things Apple sold its devices… now they had to admitt that the early move to the smaller mini usb size is better. Besides. I walk around campus and I see a ton of people using their iPhones. .. but few i5s… and many of us are getting frustrated with the upgrades of Apple and their nagging tendency to slow our tech down. The masses cannot afford to keep buying a new phone just so they can use their "maps" app. I personally bought the Galaxy SIII over an iPhone 5 ! Why? Because the thing feels natural and in my opinion works better then the iPhone. (Also… the awe factor of Apple is what sells Apple… well the awe factor is gone. I've had three Apple users asking about my phone just this week! )