The Apple of our Eye

Investment Know-How by Kevin Powell

2013 is shaping up to be one of the most exciting years I can remember for quite some time and we’re not even through January yet.

We’ve outlined a number of investments that we felt warranted consideration by people looking for opportunities in the markets. Two stocks we’ve talked about over the past few months were Facebook and NetFlix. Facebook is up more than 50 percent recently and appears to be headed even higher. NetFlix had the biggest one day gain in its history last week. It is up nearly three times from the point we began recommending it.

Another stock we like a great deal is Apple. Given its long term history, Apple has been a stellar performer. It hit a high last year of $705. Last week it touched the lowest price it had seen over the previous 12 months and traded as low as $435 a share last week.

When evaluating stocks, one of the first things you review is the company’s most recent earnings report. Last week Apple reported earnings that exceeded what the analysts were expecting. They missed their revenue mark by just a little but that was enough to drive the price down more than 12 percent last Thursday.

Another key indicator is the price to earnings ratio or PE. Apple’s forward looking PE is a 6! That’s so low from a historical perspective. Apple’s annualized returns are: 3-years 32.09 percent; 5-years 27.44 percent and for 10-years a whopping 52.44 percent. And that’s after falling 32 percent from its all-time high. It pays a $10.60 annual dividend. Insiders own quite a bit more stock today than they did a year ago. These stats are through the close of business last week.

Analysts are experts who supposedly track a company’s performance, visit factories, offices, talk to employees, etc. They have inside information that the public does not have. Thanks to the Enron debacle last decade, they do have to report their findings and that’s what it means when we say “analysts’ expectations.”

Lately, we don’t have a lot confidence in what the analysts are saying. Last week NetFlix was downgraded to a hold by one firm. It soared 40% the next day. After Apple missed its revenue number, many analysts downgraded their forecast of the price of the stock in the future. It certainly would have been nice if they had done that before the stock fell 12 percent in one day!

Wall Street is a very fickle creature. When a stock falls out of favor, it can take years or better than a decade for it to regain favor. IBM in the 1980s, Baby Bell stocks in the 1990s and many more. However, I don’t think it will take Apple that long to climb back to the top.

They have an amazing product line. They have been working on Apple TV for some time and we expect to see something significant on that front this year. In addition they have $125 billion sitting in banks around the world. That gives them ability to move very quickly and impact nearly any market they desire.

Don’t expect Apple to ride off into the sunset like so many others. Being a southerner, we know that an animal is most dangerous when it is backed into a corner or when it feels threatened. Apple has been backed into a corner and many predators are licking their chops to take a bite out of them. They best move forward cautiously.

As the S&P 500 flirts with 5-year highs, if Apple could right its ship, we would have the potential for a rewarding year in the stock market.

Please remember that even if Apple or any other stock we discuss goes up significantly in value, it still is not a suitable investment for every person who wants to buy equities. Please review this and other financial decisions with your advisors and trusted friends and family. All investments can and will lose money at various times. You can even lose your principal. If you cannot accept that as a risk, then equities should not be in your portfolio.

Kevin Powell has been a financial advisor for more than 25 years and can be reached at kpplanner1@aol.com.

Shortlink: