1/24/13 10:06 – Should You Sell Apple Stock?

Yesterday, Apple did what it almost never does – disappoint analysts with its quarterly earnings report. Worse, it reported earnings no higher than the same quarter (4th quarter) as a year ago. And, unit sales of iPhones and iPads came in at the low end of expectations. As a result, the stock is down 12% this morning to $456. Last summer it hit $700.

Is the growth story over? Is Apple now just another big tech company without Steve Jobs? Should you sell Apple stock?

Is the growth story over? No. iPhone sales were up 29% from last year while iPad sales were up 48%. That is amazing growth! It’s even better if you consider that last year’s 4th quarter had 14 weeks and this year had 13 weeks. Figure sales per day for a better comparions and the sales were up 38% and 60%. Any analyst that is disappointed in that growth is crazy, and apparently nearly all of them are.

Earnings actually beat the consensus, coming in at $13.81 vs. estimates of $13.48. Sure, that was not a jump from last year but Apple had warned in December that as is normal, ramping up production on so many new products pushes manufacturing costs up quite a bit. They will come down.

Is the company poorer for the loss of Steve Jobs? Sure, but even if Jobs were still at the helm, how many world-changing products do you expect out of him? Henry Ford invented mass production of the automobile. Steve Jobs invented the personal computer, the iPod, the smart phone and the tablet. On the last two, you could say that he took an existing idea and executed it so well that it revolutionized not only the space, but how people communicate. Don’t forget that he didn’t do this alone; he had people working with him and the vast majority are still with Apple.

Should you sell Apple stock? While the company is huge, its sales are still growing rapidly. What other company is selling 40% and 60% more units in this economy? What company is even close?

And, the price has now gone from cheap to very cheap. Apple sells for 10.6 times trailing earnings vs. the market average of 16 times earnings. It sells for 9.6 times consensus forecast 2013 earnings.

While it may take a little bit for all the people to sell once they hear the “bad news” and see the price drop, I think Apple is a screaming buy. The risk is probably 10-20% on the downside but I think you can double your money in Apple over the next 2-3 years.

BTW, I am indebted to the WSJ Heard on the Street article today for some of the numbers above.