A Great Investment Opportunity

Apple stock has fallen below 600 for the first time since summer.  This is the single best opportunity to invest in the company we're likely to see anytime soon.  While there ought to be some minimal fluctuation in the price over the next few weeks, it's unlikely to drift too much farther downwards.  Now is the time to buy.  Investors have been quick to sell following this weeks earnings call.  In making the case that now is a great time to pick up some, or some more, Apple stock - let's first look at why it sits at this current depressed price.

iPad Sales:

The current earnings call really were outstanding by most measures.  The Cupertino giant had it's most profitable fiscal quarter 4 in company history - up 25% from last year.  The quarter ended with Apple earning 6.6bn on 28.3bn in revenue - not too shabby.  These numbers resulted in Apple ending their fiscal 2012 with over 41bn in net income.  For perspective, that is more than the combined 2012 income for Google, Microsoft, and Facebook.

So why the huge hit in share price?  There were several reasons, the first of them being iPad sales.  Thanks to the iPhone 5, and a sweet new Retina Mac, both of those lines saw strong numbers in the quarter.  iPad sales were also up 26% over the year ago quarter, however sales of 14 million units (more units than any PC company sold of it's entire line) was lower than many were expecting.

In a quarter where we saw new tablets from Amazon, a google branded Nexus 7, and of course Redmond's Surface - any miss on iPad sales helped to send investors running.  Of course it's very early to decide if any of those tablets are going to have a serious impact on the iPad's dominance in the sector.  Probably the more relevant thing to look at here is that the market is going to be growing exponentially over the next several years.  In the end, it is certainly unrealistic to believe that Apple or any other company is likely to retain a near 70% market share forever (Apple's current position), however it's also irrelevant.  As long as you believe the tablet sector will grow, the iPad ought to see outstanding unit growth.   In a rapidly expanding market sales can increase even as market share shifts.  Even real trash tablets like the nook ought to see unit growth in the near term.

With a brand new iPad 4, a discounted full sized iPad 2, and the more-value priced iPad Mini - it seems silly to bet against continued volume growth in such a blossoming market.  Essentially, selling your appl shares based on Cupertino missing an imaginary number some investors agreed on is ludicrous.

Negative Earnings Growth:

The more major reason that investors have been wetting themselves this week has to do with Apple projecting negative earnings growth of approximately 10% for the holiday quarter.  The more overlooked aspect to this projection seem to be that guidance still suggests best ever revenue for FQ1 '13. For anyone looking at Apple as even a medium term investment, it's probably important to look in to these numbers even just the slightest bit.

As a new product is released, it is at the worst point in it's profitability curve.  Creating entirely new manufacturing processes, quickly scaling up production - leads to a new product having a period in which it's less profitable than after efficiencies have developed.  This profitability curve is true for all companies, but especially true for Apple.  Making premium products involves much more intricate production practices (ex. new iMac, first mass produced product ever to employ friction welding).  There is much less of a profitability curve involved when churning out cheap shit covered in metallic painted plastic.

Arguably the last month has been the very most active in Apple's history.  In just over a month we've seen the introduction of a completely redesigned iPhone 5, iPad Mini, iMac, and 13in Macbook Retina.  We've also seen smaller but still significant new versions of the Mac Mini, iPad, and virtually everything else.  Introductions of so many completely new products means that virtually everything Apple is making is at the worst point in their respective profitability curve.  However, having all new everything going in to the holidays is also likely to mean Cupertino should destroy their previous best revenue (as they predict to do by roughly 10bn).  Revenue higher than ever, net income depressed - exactly what you'd forecast for this situation.

Long term these changes increase product consumption, they drive ancillary sales beyond the quarter for everything from Apps to Lightning adapters.  Of course Apple's over-all customer satisfaction sits near 90% (higher than any competitor).  Having so many new and exciting products leads to building a larger user base and being more able to make next year increasingly successful.  Again, long term there is huge upside in the stock here.

History and Perspective:

Of course before burning your Apple shares we also need to gain perspective by looking at the past - even the recent past.  Apple guidance is always laughably conservative.  In this quarter for instance, despite how people may feel - Apple still beat it's stated guidance for the quarter.  With their freshest all around product line ever going into the holidays it's very likely Apple will beat this projection as well.

Last year we ran in to a similar situation where FQ4 targets weren't as lofty as some on the street were expecting.  There was a huge run off in stock leaving share price very depressed going in to the holiday quarter.  Apple destroyed their targets, and everyone who sold lost out on enormous gains.  In a couple months we'll again see so many investors looking so ridiculously foolish.