Apple (NASDAQ: AAPL ) shares have been on quite the ride this year, and for investors, the recent price swings have been anything but pleasant. The stock fell almost 4% on Friday to close below $510, a far cry from its $700 September levels. Sure, there have been some legitimate reasons for Apple's fall, but when you get down to it, Apple's stock looks like the victim of a dramatic overcorrection.
What's with the selling?
Among the most frequently discussed issues plaguing Apple's stock in the past few months have been related to its Maps technology. Let's be clear on this: Apple made a mistake. Apple Maps wasn't ready for prime time, it rolled out too soon, and the company paid the price for it. Heads have rolled and apologies have been issued.
And yet the Maps fiasco continues to linger. Recent reports about Apple Maps users getting stranded in Australian deserts and news of bitter rival Google (NASDAQ: GOOG ) Maps' arrival on iOS have investors spooked. The fear is that Google will not only collect valuable data on Apple users, but that it will woo customers away to its own mobile products. Not to be alarmist, but that's already happening. And it doesn't matter. Smartphones running Android accounted for 72% of the market in the third quarter, compared to Apple's lowly 14%.
So what's the kicker?
Ah, of course, the kicker. The kicker is that Apple products still account for about 60%-70% of the world's smartphone operating profits. Android just can't make money like iOS. Granted, smartphones aren't the only product Apple makes, and Maps aren't the only reason for the recent sell-off.
Show me the money
Another reason Apple's shares have slumped recently has to do with the fiscal cliff. The Cupertino company, which has a cash hoard of over $120 billion, did not, like so many other companies, decide to pay any accelerated dividends in December to avoid possible dividend tax hikes in 2013. While other companies have accelerated dividends, Apple is by no means the only company to reject the procedure, and it seems a petty reason to dismiss the stock on that principle.
Of course, Apple didn't pay a dividend at all until this year, which should be a victory in and of itself. Never mind that the dividend sits at 2%, which isn't too shabby, either, especially for a company that's grown earnings per share an average of 70% over three years. Maybe there's an even better reason for the sell-off.
Competition! That's it!
You can say a lot of things about the technology sector, but you can't say it's not competitive. Aside from Google, Apple's bloodthirsty competitors range from old-school rival Microsoft (NASDAQ: MSFT ) to Amazon.com (NASDAQ: AMZN ) and Samsung, as well as Research In Motion (NASDAQ: BBRY ) and Barnes & Noble (NYSE: BKS ) . All these companies sell tablets to compete with the iPad, making it a very crowded area indeed. Heck, on top of that, RIM is even rolling out two brand-new BlackBerrys with a new interface... at the end of next month, that is, after the holiday season is long gone. Nice move, RIM. That'll really get you back in the game.
While much has been made about Apple's shrinking section of the tablet market, it's still projected to finish the year with over half the tablet market, at nearly 54%. How much is this ruthless influx of competition forecast to hurt Apple's tablet share by 2016? Brace yourselves: Apple will only control 49.7% by then.
So, what can fix Apple's stock?
Apple still has one of the most enviable positions in the market, an innovative culture, and a premium brand image. It may enter the TV business. Not to mention that as a global company, it has tremendous growth opportunities abroad, and nowhere is that more true than in China.
Right now, Apple has deals with two of China's three biggest carriers, but it still hasn't locked anything down with the top dog, China Mobile (NYSE: CHL ) . Nokia (NYSE: NOK ) , which does have a deal with China Mobile, is currently enjoying first dibs on the telecom's nearly 700 million customers. Compound that with the fact Nokia phones are running Microsoft's newest Windows 8 software, and you can bet that Apple wants to get in the game as soon as possible. So far, Apple has failed to do that. But if and when it does, the move could, by some estimates, instantly double sales of the iPhone.
What's with the valuation?
At the end of the day, all this negative press has done nothing but yield a valuation that borders on nonsensical. For instance, investment firm UBS (NYSE: UBS ) bumped down Apple's price target from $780 to $700 on Friday, and the stock plummeted. It may sound logical at first, but when you consider that $700 still represents more than a 35% premium to Apple's current price, you have to scratch your head.
We're talking about a rapidly growing company with great products, devoted customers, a five-star CAPS rating, tons of cash, and a 2% dividend that trades at a lower multiple (12.2) than the average stock in the S&P 500 (SNPINDEX: ^GSPC ) (16.8). If Apple isn't a screaming buy on qualitative reasons alone, it sure is on quantitative ones. In fact, it may be the easiest pick in the whole market.
There's no doubt that Apple is at the center of technology's largest revolution ever, and that longtime shareholders have been handsomely rewarded with over 1,000% gains. However, there is a debate raging as to whether Apple remains a buy. The Motley Fool's senior technology analyst and managing bureau chief, Eric Bleeker, is prepared to fill you in on both reasons to buy and reasons to sell Apple, and what opportunities are left for the company (and more importantly, your portfolio) going forward. To get instant access to his latest thinking on Apple, simply click here now.