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Should Apple Investors Take Advantage of Today's Weakness?

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In a move that should confound long-term investors, Apple (NASDAQ: AAPL  ) is down on concerns that the Apple-China Mobile (NYSE: CHL  ) deal hasn't been inked yet and on poor guidance from Apple supplier Jabil Circuit (NYSE: JBL  ) . For long-term investors, none of this information is material to Apple's long-term thesis and perhaps points to a buying opportunity.

You can't lose something you don't quite have yet
It appears Wall Street is upset something has been taken from it that it never had in the first place. Apple has never inked the deal with China Mobile, so how can Wall Street sell the stock off in anticipation of...nothing? Of course, we can argue that Wall Street was anticipating this deal was going to happen – but to be upset that China Mobile came out today and said there is no deal currently in place is strange considering nothing has materially changed.

Of course, Apple (and its investors) would love to have access to China Mobile's 750 million subscribers. However, jumping in to take advantage of short-term movement then selling off when China Mobile denies the deal is inked is irrational thinking at its worst. It's safe to assume both Apple and China Mobile wants this. Apple would love access to China Mobile's 750 million subscribers and China Mobile wants to compete with China Unicom and China Telecom, Chinese carriers that already sell the iPhone.

Wells Fargo analyst Maynard Um summed up my feelings on this issue: "While the missing announcement may be perceived negatively, we see this as a non-issue and believe this is more of an issue of timing and ultimately expect an agreement to be reached."

Is Jabil's tail wagging Apple's dog?
In another example of Wall Street's myopia, analysts were quick to mark down sales of Apple's first-quarter iPhone sales expectations from Jabil's weaker-than-expected guidance. At first glance this makes sense; it is reported that Apple accounts for nearly half of one of Jabil's business units – the diversified manufacturing services business.

However, the analyst forgot to mention the diversified manufacturing services is only 44% of Jabil's net revenue in fiscal 2013. So, if these numbers hold (and are true), Apple is less than 25% of Jabil's revenue. It would be hard to glean if Apple is the cause of Jabil's poorer-than-expected outlook. For long-term investors to change their investing thesis on this probability seems rash.

What should you do?
In investing, many times the best decision is to do nothing. These could potentially be big stories, but right now they should be relegated to the "noise" status of your investing thesis. It appears the China Mobile deal is now a matter of when, not if, and Jabil Circuit's guidance isn't strong enough evidence for long-term investors to sell Apple.

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Read/Post Comments (5) | Recommend This Article (6)

Comments from our Foolish Readers

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  • Report this Comment On December 18, 2013, at 4:32 PM, johnestromjr wrote:

    Apple's ongoing negotiations with China Mobile are a lot like fishing. You try and try and try to get that fish to bite. You use every lure under the sun, emptying out your tackle box in the process. You try bait, flies, spoons, spinners. Nothing works.

    Then you start withdrawing the bait/lure and the fist bites. Time for Apple to start withdrawing in it's attempt to get China Mobile to do a deal. Hop on the airplane and come home. Let a few quarters pass and let China Mobile see how well China Telecom and China Unicom are doing with Apple's products. Then let them come to Apple rather than Apple go to China Mobile. China Mobile is the tail wagging the dog. Let Xi sit and wait and wonder.

  • Report this Comment On December 18, 2013, at 5:55 PM, TMFChipFool wrote:

    Great article, Jamal.

  • Report this Comment On December 18, 2013, at 9:01 PM, larryw101 wrote:

    Very good article Jamal.

    I especially agree with how can you say you lost CM when you never had it to begin with. Wall street should respect Apple in that it won't bend in making a bad deal. I really think Apple is in the drivers seat with CM.

  • Report this Comment On December 19, 2013, at 9:22 AM, TMFJCar wrote:


    Thanks, and I always look forward to your articles.


    Strange world indeed. I agree with the China Mobile sentiment.

  • Report this Comment On December 19, 2013, at 6:53 PM, steviepadgett wrote:

    Apple makes things people like. Most people that have tried one of theire devices cant let go of it and switch to another brand because it really fells like you´ve got the best . All macs, ipods, iphones and ipads conect so they got you in theire circle and its hard to let go. You start buying 20$ itunes cards, then you get to buy the 50$ ones. And when you want to upgrade youre old devices there are plenty of people than are willing to get what you are letting go, and thats new people on apples world and itunes spending,

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9/30/2016 4:00 PM
AAPL $112.97 Up +0.79 +0.70%
Apple CAPS Rating: ****
CHL $61.52 Down -0.37 -0.60%
China Mobile CAPS Rating: ****
JBL $21.82 Up +0.07 +0.32%
Jabil Circuit CAPS Rating: ***