Buy, Sell, or Hold: Apple

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When it comes to investing, knowing when to buy, sell, or hold a stock can mean the difference between making money and losing it in the market. However, making the best decisions for your investments can be challenging. Fortunately, investors can minimize risk by weighing both the pros and cons of a given stock before deciding how to act. Today, we'll take a closer look at Apple (Nasdaq: AAPL  ) and evaluate whether investors should buy, sell, or hold the iDevice giant.

Let there be no mistake: Apple is one of the most innovative companies of our time. The bears will tell you that Apple's lost its edge. But the truth is, Apple continues to innovate within its established product lineup. Think: retina display, battery technology, Siri, and user interface.

One of the key things binding customers to Apple is a uniform integration of hardware, software, and third-party apps into its different products. Apple's iCloud is a great example of this because it wirelessly syncs and stores your media content (music, contacts, apps, calendars, etc.) on all of your iOS devices. Therefore users are less likely to move outside Apple's ecosystem to an Android or Samsung device.

Based on research from "Ask Your Target Market," Computer World reports that "87% of existing iPhone users plan to buy a new iPhone in the next six months, and just 9% intend switching to Android." Strong demand for Apple's iPhones should help drive sales of other iOS products as well.

Heading into the holiday shopping season, new product launches, including the iPhone 5 and iPad Mini, bode well for the tech giant. The updated iPhone version continues to generate record demand, in spite of recent supply constraints and criticism surrounding Apple's new mapping technology. On that note, let's look at what the critics are saying and why investors may want to sell shares of Apple.

As a shareholder, I know firsthand how hard it is to stand your ground, while the bears are screaming sell, sell, sell! Negative headlines, lowered profit guidance, and a management shakeup are just some of the many headwinds the company recently endured.

The mobile industry is a particularly challenging market when it comes to maintaining dominance. Technology companies are under tremendous pressure to continually innovate, lest they become irrelevant. Just look at what happened to Research In Motion (Nasdaq: RIMM  ) . In 1999, RIM invented the first BlackBerry smartphone and revolutionized the mobile industry. Today, the company's stock has lost more than 90% of its value since its mid-2008 highs. The once iconic BlackBerry maker's failure to adapt, paired with a series of bad decisions from top-management, led to its downfall.

While Apple is far from following in RIM's footsteps, rivals with deep pockets including Google (Nasdaq: GOOG  ) , Samsung, and (Nasdaq: AMZN  ) are gradually catching up. Therefore, if Apple wants to remain on top for years to come, it needs to continually add innovative features to its products. Competition in the tablet segment is also heating up. Amazon, Google, and Microsoft (Nasdaq: MSFT  ) all offer compelling alternatives to Apple's iPad device.

Amazon's Kindle Fire brings the heat in terms of pricing strategy. That's because Amazon sells the tablets at a slight loss and instead counts on content consumption to drive sales. Meanwhile, Microsoft stole the spotlight earlier this year with the debut of its Surface tablet. Preorders of the device completely sold out last month both in the U.S. and the U.K.

With tough competition in key segments such as smartphones and tablets, Apple needs to be on its game going forward. However, some analysts worry that without Steve Jobs at the helm, the company may struggle to uphold its creative edge. But before we jump ship, let's review why investors should consider holding Apple shares.

During the past few months, the Mac maker has made some major changes to its business. For starters, Apple recently divorced itself from Google's (Nasdaq: GOOG  ) Mapping service in favor of its own maps technology. The switch didn't go quite as smoothly as Apple had hoped. In fact, Apple CEO Tim Cook issued an apology after initial complaints about the company's new mapping application got out of hand.

Separately, Apple continues pouring money into its ongoing legal battles around the world with other tech heavyweights, whereas a better use of cash would be to amp up research and development, and focus on product innovation. These shifts in strategy are part of the reason the stock continues to dive deeper into bear territory. However, not all is lost.

Apple shareholders have a lot to gain by sitting tight. One of the biggest issues Apple is facing right now is production constraints for its newest iPhone. Foxconn CEO Terry Gou said the company is struggling to keep up with the massive demand for the iPhone  5. All things considered, that's a pretty good problem to have. Record demand is key, considering the iPhone accounts for about 53% of Apple's total revenue. Moreover, as Apple catches up with demand, investors should see a significant sales boost in the quarters to come.

The not-so-obvious choice
What's the deal with Apple? That's the billion-dollar question these days. Though the stock has been extra volatile in recent months, let's not forget that Apple is one of the most powerful brands in the world -- innovative products and legions of loyal customers abound.

Still, no investment is without risk. Apple may face more challenges today than it did three years ago, but it remains fundamentally strong. The stock is trading around $550 a pop, with an attractive price-to-earnings ratio of 13. The reality is: Apple has billions in cash on hand, not to mention zero debt to its name. Shares are down more than 12% this month, but from where I'm sitting, this creates a buying opportunity for patient investors.

I plan to take advantage and add to my position. But if you're not as confident in the stock, I encourage you to instead check out the Fool's new premium analysis report on Apple.

By picking up a copy of our premium research report on Apple, you'll learn everything you need to know about where the stock is headed, as well as some of the hidden risks in the name. Best of all, you will receive ongoing guidance as key news hits -- so you know when to buy, sell, or hold shares. Claim your copy today by clicking here now.

Read/Post Comments (7) | Recommend This Article (19)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 11, 2012, at 9:57 PM, PedroHMG wrote:

    Apple will sell 50,000,0000 iPhones and 30,000,000 iPads this quarter. They sell a record number of Macs. Apple has their best over all product lineup in the history of the company. ALL of their products their year are back loaded as were their retail store openings. Apple will be at record highs after BLOWOUT record earnings in the January financial quarterly earnings release. Any one betting against Apple long term is a FOOL and NOW is the time to buy more or get onboard. Long Apple since $37 and Apple's PE is cheaper now when I bought it at $37!!!

  • Report this Comment On November 11, 2012, at 10:28 PM, H3D wrote:

    Load up the truck!

  • Report this Comment On November 11, 2012, at 11:46 PM, xerohype wrote:

    Buy AAPL when the PE dips 10% below the S&P 500 PE, then sell when it climbs to a PE 10% above the S&P 500. Lather, rinse, repeat. Use options if you are gutsy, covered calls and naked puts.

    Retire rich. What a simple plan, wish I had thought of that.

    If only AAPL sold for the PE of AMZN! <sigh>

  • Report this Comment On November 11, 2012, at 11:48 PM, xerohype wrote:
  • Report this Comment On November 12, 2012, at 10:53 AM, lucasmonger wrote:

    I wouldn't blame anyone for selling Apple at $700 a few weeks back, but to sell now after missing the $700 price point seems silly. The stock should eventually rebound.

    If you own Apple stock, you must hold, unless you need the money to buy a house, send a child to college, etc. There's no reason to cash out now just as they have a whole new product portfolio just before the holiday season.

    As for buying, that's a tough call. The time to buy was in 1997 at $5 (before the introduction of the iMac), 2002-3 during the dot-bomb era at $6, and during that financial crisis at $87. Wait on the sidelines for a decade when another near-apocalyptic stumble happens in the market, then go all in.

    It seems interesting that the Fool really encourages long-term thinking, but articles seems to have a short term/day trading slant to them. Don't be a day-trader, work hard to be a decade trader.

  • Report this Comment On November 12, 2012, at 1:07 PM, TheRealRacc wrote:

    If everyone on this post is aware of the potential happenings (revenue and product line) for Apple over the next 12 months, then it is already factored into the stock price.

    Apple is currently providing nothing except an opportunity to gamble. Over the next 6 months, $400 or $600 have an equal chance of happening. As does $300 and $700.

    There are too many factors in the game we call the stock market other than Apple consumers supporting the company.

  • Report this Comment On November 13, 2012, at 12:41 AM, lowmaple wrote:

    "Over the next 6 months" Now that's long term investing!

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