Apple's Miss Is Your Opportunity

Much has been made about Apple's (Nasdaq: AAPL  ) so called "earnings miss" in recent days. And while it's true that for the first time in recent memory Apple reported revenue and earnings below what Wall Street was expecting, Apple's performance in the fourth quarter was still extremely strong. Rather than panicking and selling, Tier 1 investors are calmly using the decline in Apple's share price to buy the stock at a discount to its true value.

So why were Apple's earnings weaker than Wall Street had hoped for?

Well, it wasn't because customers were holding off buying a tablet computer as they waited for Amazon.com's (Nasdaq: AMZN  ) new Kindle Fire – Apple sold 11 million iPads in the fourth quarter, which represents 166% unit growth year-over-year.

And it wasn't because people were buying Dell (Nasdaq: DELL  ) or Hewlett-Packard (Nasdaq: HPQ  ) PCs rather than Macs – Apple sold nearly five million Macs, up 26%.

The big difference between Wall Street analysts' expectations and Apple's actual results was related to iPhone sales. Apple sold 17 million iPhones while the consensus estimate was for 20 million. But again, I don't believe the shortfall was because formerly loyal Apple fans were converting to Google's Android-based phones or waiting with bated breath for Nokia's (NYSE: NOK  ) new Microsoft's (Nasdaq: MSFT  ) Windows-powered phones.

Apple explained in its conference call that fourth-quarter iPhone sales were affected by rumors surrounding the release of the new iPhone 4S. So what seems to have happened is that people held off buying an iPhone until the new model was released. And buy they have -- Apple recently announced that it sold 4 million new iPhones 4Ses in just three days.

Now as Apple satisfies that pent-up demand, this will be reflected in Apple's future sales and earnings numbers, which I believe are poised to wow investors once again. Apple seems to be thinking the same thing. The company is normally very conservative in its earnings projections -- to the point of being accused of "sandbagging it" -- but management actually issued guidance for the current quarter above what Wall Street was expecting.

Nothing in Apple's fourth-quarter results changes my belief that Apple is worth $500 per share, and possibly much more. Rather than a reason to sell, I believe the recent earnings-induced pullback in Apple's share price is an opportunity to buy Apple at an even more attractive price.

And if you're looking for another attractive opportunity in addition to Apple, The Motley Fool has compiled a new report called "The Only Stock You Need to Profit from the NEW Technology Revolution." The report highlights a company that has gained 237% since first recommended by Fool analysts but still has plenty of room left to run. Thousands have requested access to this special free report, and now you can access it today at no cost. To get instant access to the names of this company transforming the IT industry, click here -- it's free.

Joe Tenebruso manages a real-money Rising Star portfolio for The Motley Fool and is an analyst on The Motley Fool's Million Dollar Portfolio and Income Investor premium services. Joe is short put options on Apple. The Motley Fool owns shares of Microsoft and Apple. Motley Fool newsletter services have recommended buying shares of Dell, Apple, Amazon.com, and Microsoft, as well as creating bull call spread positions in Microsoft and Apple. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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  • Report this Comment On October 28, 2011, at 1:11 AM, ConstableOdo wrote:

    Apple is one of the most manipulated stocks on Wall Street. The hedge funds and analysts that control this stock are not trustworthy at all. They're always trying to find some way to devalue Apple stock. Every time that Apple shares drop, it's supposedly always a reason to buy more Apple shares. So far, it's been well above $400 at least three times and continues to fall back below $400. The stock sure doesn't appear to be as strong as some claim it to be.

  • Report this Comment On October 28, 2011, at 9:39 AM, Jon408 wrote:

    "The stock sure doesn't appear to be as strong as some claim it to be."

    AAPL is listed by IBD at #9 in the IBD50 right now, and ranked "Best in Group" for EPS and Composite (overall). But you're correct... the Acc/Dist. ranking is D- at 9%. Seems like an opportunity to me. The disconnect that the market has with Apple is both famous and long. Apple seems to be the widest held stock on the planet and yet... it actually doesn't get the respect for its growth cash flow that it deserves.

    I keep wondering - is this a weird situation where a company is TOO popular with investors and institutions? If everyone who is going to buy already has a full "allotment" of shares, how is the pricing going to go up???

  • Report this Comment On October 30, 2011, at 4:28 PM, ayaghsizian wrote:

    Jon, We never have a full allotment. Each quarter and each announcement we find new reasons to buy more.

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