Apple As Wall Street Whipping Boy


Apple Inc. is fast becoming the poster boy for all things that are wrong with Wall Street right now, and that in itself might represent an opportunity for the savvy investor willing to play the odds instead of curling up in a ball and letting traders kick them in the head over and over again.

Apple will release its earnings on Oct. 21, essentially right in the middle of the tech earnings cavalcade, with Intel reporting Oct. 14; Google coming Oct. 16; Yahoo reports the same day as Apple, and Microsoft reports two days later.

I know it's a little early for an Apple earnings preview, but a prepared investor tends to be a wealthier investor, so keep the following in mind: The Street right now is suffering from a wide range of expectations when it comes to this company, anywhere from 95 cents to $1.36 a share. Consensus is at $1.12 on just over $8 billion in revenue. Apple's guidance, the Street thinks, should be $1.74 on $11 billion for its first quarter, which is the calendar's holiday shopping quarter. (And remember, Apple typically low balls guidance so when the company "misses" Wall Street's expectations on that front, shares could again take a hit. But smart Apple investors with an eye toward the company's history should know how to properly digest that news, should that happen.)

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In this climate, the pressure is enormous on Apple to meet or even beat these numbers. And for a company that typically sandbags guidance, this could again get dicey for Apple investors. Apple shares have already been cut in half this past month. It's been ugly. But unlike so many of those other companies also cut in half, Apple is collateral damage to the destruction on Wall Street.

I'm reading the analysis, like you. I'm listening to the experts, like you. I'm talking to folks inside Apple, just like some of you. I'm seeing the foot traffic at Apple stores here in Silicon Valley, like many of you. I see the $21 billion in cash that Apple's banked. I've long suggested a stock buyback, controversial to say the least.

I'm weighing the economic meltdown, against Apple's and the Street's expectations, and I see market research suggesting that Apple's iPhone sales are only accelerating, that new iPods -- with their higher performance and lower prices--should sell well, too, and I see nothing indicating that Mac momentum has slowed in any meaningful way. And just for the sake of argument, let's ponder that indeed some sales have slowed.

Apple's share price now, even with today's slight rally, suggests a complete and wholesale destruction of the Apple sales model and a complete about-face by consumers who up until a few short weeks ago were breathlessly snapping up anything with an Apple logo. Based on the action in Apple stores, anecdotal such that it is, I'm not buying it. The trends and traffic simply don't reflect that.

So investors are faced with a quandary. Roll the dice on Apple? Sit back and do nothing? I don't make stock recommendations, as I've indicated so many times before. All I can tell you is, tune out the noise, focus on fundamentals, think longer term, and be disciplined to buy low and sell high, rather than the other way around.

All that advice didn't become a cliche by accident. It has worked through the ages and particularly in volatile periods like this. Think the months and years post 1987. Measure your expectations, and make your decision. For so many companies, but Apple in particular: Fundamentals, long term, period.

Questions? Comments?