Apple Earnings: Wall Street's Disappointment Could Be Your Opportunity

Apple's first quarter earnings may have disappointed, but that could spell opportunity for patient investors

Jan 27, 2014 at 7:00PM

Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.

Although U.S. stocks opened up this morning, they weren't able to sustain that momentum, as the S&P 500 fell 0.5% on Wednesday. The narrower Dow Jones Industrial Average (DJINDICES:^DJI) fared slightly better, losing just 0.3%. There's good reason to believe the Dow will outperform the S&P 500 tomorrow as well, since the S&P 500's heaviest weighting, Apple (NASDAQ:AAPL), which isn't a Dow component, looks set for a tough day.


Sometimes there's just no pleasing Wall Street. Apple beat analysts' estimates for earnings per share and revenue, yet the stock is being punished in the after-hours session, down 8% at 7:47 p.m. ET. Indeed, the company posted record quarterly revenue of $57.6 billion, earning $14.50 per share, where analysts were looking for $57.5 billion and $14.09 per share, respectively, according to Thomson Reuters I/B/E/S.

Earnings per share were also much significantly higher than Apple's guidance suggested (admittedly, Apple has a long track record of under-promising and over-delivering in this manner). Going by the actual weighted average diluted share count during the quarter, and using the midpoint of the guidance range, produced an earnings-per-share forecast of just $13.30.

Why, then, the drop in the shares?

For one thing, quarterly profits of $13.1 billion are flat relative to the year-ago quarter ... which was itself flat compared with the fiscal first quarter of 2012. For a growth company, that's a long time to go without any growth.

Second, iPhone unit sales of 51 million were below analysts' expectations for 55 million.

Third, the market is forward-looking, and Apple's guidance for its fiscal second quarter falls well short of analysts' expectations. By my calculations, even using the top end of Apple's guidance range and an aggressive assumption for share count reduction, earnings per share would still be more than a dollar short of the $10.93 consensus estimate.

However, for investors whose time horizon extends beyond the next quarter, there were other, more positive elements to hang one's hat on.

Take the China Mobile deal, for example. Earlier this month, I wrote that this is "a long-term bet, not a short-term catalyst for a significant rerating in the shares." I still believe that, and so does Apple CEO Tim Cook, who told analysts and investors on the earnings call that the iPhone is available through China Mobile in only 16 cities so far, but that number will rise to 300 by the end of the year. "We've got a ramp in front of us," he concluded.

Or how about the opportunity in mobile payments, which The Wall Street Journal highlighted in a story last Friday? Cook weighed in by stating: "people are loving to be able to buy content, whether it's music or movies or books from the iPhones using Touch ID. It's incredibly simple and easy and elegant." Cook confirmed that mobile payments were one of the drivers for developing Touch ID (the fingerprint sensor on the iPhone 5s).

Last Wednesday, legendary investor Carl Icahn tweeted that he had bought $500 million worth of Apple shares within the past two weeks. Thursday, he again took to Twitter to announce that he had added another $500 million worth that very day, bringing his total position to $3.6 billion. If today's after-hours action is any indication, investors will get the opportunity to buy shares at a discount to the price this wily billionaire paid on a billion-dollar commitment. Just remember: Carl Icahn didn't accumulate a $20 billion fortune listening to Wall Street weathervanes.

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4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.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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