Author Topic: A letter to clients about Apple  (Read 2202 times)

Offline DRobinson

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A letter to clients about Apple
« on: December 15, 2011, 04:36:06 pm »
I just sent the following e-mail letter to some of our clients and want to share with the HEF family.

No advice here, just my thoughts.

December 14, 2011

Because we hold significant positions in Apple Inc. (AAPL), I want to take a minute to share my thoughts about AAPL's recent price performance and my expectations going forward.

AAPL stock has spent most of the last five months trading, in a range, between $370 and $405 per share. These periods of sideways price consolidation are typical for AAPL and have historically preceded sharp price movements. We also know that shares of AAPL typically rally into their earnings reporting dates.

AAPL is expected to report earnings around the third week in January 2012, so it would be in keeping with historical precedent to see AAPL stage a strong rally over the next six weeks.

Characteristic of these historical patterns, there is a high probability that AAPL will "retest" it's recent lows and could trade down to $370 per share (maybe even a couple dollars lower) before it embarks on a rally, going into earnings.

There is a very high probability (80% +), in my opinion, that AAPL will act the same as it has over recent quarters.

If we look at how AAPL traded from a low in June 2011 as it ran up into earnings in July, we see that it went from a low of $310, to a high of $404, in under six weeks. It similarly moved from $235 to over $300, in roughly six weeks starting in August 2010. Right before the stock made these massive 30% runs, investor sentiment was very bearish despite AAPL's fundamentals remaining in tact.

Today, AAPL's fundamentals remain very strong, in the face of overall bearish investor sentiment.  AAPL holds about $82 billion in cash! Roughly 23% of AAPL's entire market cap is held in cash, on their balance sheet. We are seeing reported sales of iPhones more brisk than originally estimated which bodes well for revenue and earnings.

If AAPL were to retest it's recent low at $370, then rally 30% into earnings, as it did  in the recent examples cited above, it would be trading around $475 per share, next month. It would not be surprising to see a rally in AAPL shares, play out this way.

AAPL is at, what should prove to be, a major inflection point. Barring an all-out collapse of the stock market, AAPL should be trading much higher six weeks from now.

Please contact me with any questions about AAPL or the market in general.

Be Well