Apple Shares Fall After Record Profits. So What? It’s Only Profit-Taking

Don’t follow the herd. Not stupidly anyway. {complink 379|Apple Inc.}'s stock price tumbled almost 5 percent, or $15.51, in after-market trading, hours after the company announced record earnings and sales in its fiscal fourth quarter. (See Apple Q4 Profits Rise 70%.)

Analysts cited lower-than-expected iPad sales for the stock price decline. The following BusinessWeek story sums it up in the headline: Apple Tumbles After Forecast Miss; Jobs to Use Cash for Future.

Here’s my take on the decline. First, Apple’s stock price will recover, nicely; although, I still believe many investors — including some experts — have thrown caution to the wind with regard to Apple’s valuation. There’s a simpler reason for the latest decline, and it’s summed up in two words: profit taking. (See Why I Am Cautious About Apple’s Soaring Stock Price.)

There will come a day when Apple’s valuation will undergo a major correction, but that’s not going to happen right away. It will take some time for the quiet voices of moderation to be heard, but they will prevail eventually. Until then, Apple’s stock price will continue to surge, moving up as others in its sector see less violent swings.

Just as I warned above against following the herd, I would also caution against believing the hype. So, Apple didn’t sell as many iPad as analysts had predicted — big deal. The company still sold 4.19 million units of a product it didn’t have at the beginning of the year, and {complink 7427|iSuppli Corp.} believes it will sell 13.8 million units in 2010, up from a prior estimate of 12.9 million units.

If you had one week ago bought Apple’s stock price ahead of the announcement of fiscal fourth-quarter results, you might be selling now, too, to rake in some profit. On Monday, Oct. 11, Apple’s stock price closed at $295.36 but jumped to a new 52-week high of $319 on Monday, Oct. 18. If I had bought a mere 1,000 of the shares one week earlier, I would be deliriously chanting as I padded my depleted retirement account.

For investors still seeking a deeper insight into Apple’s future, let me point out the words of Michael Obuchowski cited by BusinessWeek in the article referred to above: “Everyone is closing in and it’s a huge question of how they are going to respond,” said Obuchowski, chief investment officer of First Empire Asset Management, which holds Apple shares. “I’m really worried about Apple; I’m not convinced that I’m going to hold Apple two years from now.”

4 comments on “Apple Shares Fall After Record Profits. So What? It’s Only Profit-Taking

  1. Anna Young
    October 19, 2010

    Don't panic. Are you kidding? If you buy high and see your stock price fall 5 percent in one week, you should panic somewhat. Sure people say you should use that opportunity to add to your holding of a stock if you believe it will recover but it's difficult gauging the trough and the high. That's why some of us stay on the sidelines and watch the gyrations of a company like Apple. If I am going to invest in Apple, I would have a professional trader handle this for me and then I would pray and hope he or she is doing their homework.

    The other issue you didn't treat in this analysis and a previous one is answer the question of who is keeping Apple honest. With everyone expecting the company to always demonstrate its Midas touch, I am beginning to wonder if the investors, analysts and fund managers actually dig deep enough and question the company hard enough about its strategies. Is Steve Jobs' halo making shareholders and analysts hesitant to ask the tough questions they would ask other executives? Any insight?

  2. Steve Saunders
    October 19, 2010

    concur on “not panicking.” Hard to do when the market no longer behaves in anything like a rational fashion. 

    Not sure i would trust a “professional” to invest my money in Apple – in the age of educated retail investors (you, me) how much more do they really know?


  3. Hawk
    October 19, 2010

    Steve, The challenge for people like me is we are not educated enough on equity investment to make all the right decisions about stocks, especially when this involves companies as complicated as Apple. I checked the company's stock price over the last few days and it seemed to have bounced around like a yoyo. Then I noticed Yahoo had detailed information on things like trading volume and today's volume was 43.9 million versus regular average of 19.6 million! What happened to Apple today? Why do I want to know? Greed. It's hard not to get sucked in as the company's shares continued to rise. For the untutored, knowing when to get in and when to get out is becoming rather mindboggling.

  4. Steve Saunders
    October 20, 2010

    completely agree. At this point i just buy companies i have heard of and that have good track records for at least a dozen years. Not very interesting but also quite safe

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