Apple Inc (AAPL)

As a value investor, he thinks this is going to make something over $40 this year. It has $150 a share in cash. Take off the cash and you are getting $40 of earnings for $300, which is 7X earnings for one of the great companies in the history of the world. He is assuming a major share buyback will be announced at the annual meeting as well as an increased dividend. Yield of 2.3%.

Fairly predictable. Found support in $450 area. Trend is negative and not a lot supporting it long term. He would not be buying it here. He would take a look at it at $400.

Has been surprised at the magnitude of the drop in price. This was a positive high momentum company on the upside and has flipped around to a negative momentum. Fundamentally, not a lot has changed. By the end of their fiscal year, he thinks they will have about $175 a share in cash. Trading at about 5.5X ex-cash. Extremely cheap but right now the market is not carrying about fundamentals.

Now that the stock has retreated back to around $442, he is looking at this closely. Very concerned about the next couple of quarters which are going to be a little bit shaky because of margin pressure. They need a refresh of the product. Apple 5 is good but is not selling outside of North America as well as people had hoped. 75% of the profits in the industry. Has the ability to layer on the big base of new products that will rejuvenate it.

Just under 2% of outstanding shares being shorted. This is probably incidental. It broke a 2-year trend line. As a bell weather there may be a changing of the guard. It could bounce back up to the trend line and then come back real quick. But it could take a lot of time to work through this.

Don’t confuse a good story with a good investment. Tripled over the last 3 years and the market expected this to continue. Really a product of a fund-filled story. As Apple moved higher on earnings, mutual funds came in behind and reweighted to the index which pushed it higher and higher on supply and demand. Unfortunately, expectations have come down and funds have caused more volume to go into the market and pushed the price down further and further.

Fourth-quarter is coming up and if it gets clobbered, he’ll want to see why. If the quarter turns out not badly, he thinks he would add to it. A long-term bull on the company. There is lots of room on the upside, especially in developing nations.

(Top Pick Feb 2/12, Up, 11.92%) Has not been easy to hold the last 3 months. Wishes he had added to it after the 30% sell off. It got ahead of itself. All the bad news. We will find out what’s going on next Wednesday.

Ranks very nicely. Trading at 10X earnings with an estimated growth rate of 20% going forward. If growth rate backed down, a 15% still gives you a PEG ratio of 0.66, which is very cheap. If it goes down to 10%, the PEG is still 1.0 so anyway you cut it, this stock is very cheap.

Has already bought some today. It is a great opportunity to buy the best branded company in the world at a discount.

Just announced good sales in China but stock price hasn’t reflected this. How come? A lot of concerns in China are on margins which are not quite as high as North American margins. Apple pretty well revolutionized a big part of the technology space and has some of the largest revenues of the technology sector. Valuations look fairly attractive. When you get into such large companies with such large revenues, especially with margins quite high, you wonder how they will replace that, so she tends to stay away. (See Top Picks.)

Market is driven by earnings and fundamental growth, but it is also driven by psychology. The drop in stock price from $700-$523 is more because of psychology because not much is changed with this company.

Big question “is it a value trap, or not” as it looks cheap at only 11X forward earnings. If you look at the 2^nd derivative of earnings, this company has very, very high margins. A company that attains the margins they have seldom keep it. As the innovation cycle has waned, we will see the competition come in and continually chip away at those margins. Thinks it is a value trap.

Has not violated a long term trend line. It could go down to $490 and not violate it. The selloff is over. It could still run up, technically.

Buy Feb $500 Puts / Sell Feb $520 Puts. There are very low expectations from the street and he doesn’t think they will do that badly. Even if they go nowhere you make money with this strategy.