While Apple's (AAPL 1.05%) calamitous plunge from more than $700 a share and the loss of its title as the largest company on earth may be the ultimate cautionary tale about flying too high, you must ask yourself where the stock is going from here. The company has been unfairly penalized for a slew of essentially arbitrary "problems" -- like selling a mere 47.8 million iPhones last quarter -- but there are some real concerns on the horizon, both company-specific and systematic to the market. Ultimately, I remain bullish on Apple over the medium and longer term, but I think the stock is headed for $400 before it reverses and heads higher.
Positive catalysts
With the rollout of the BlackBerry 10 OS and the new Z10 smartphone from Research In Motion (RIMM +14.48%) (know known as BlackBerry), Apple investors can cross any immediate threat to the company's U.S. sales off the list of concerns. The Z10, which did get some favorable reviews, will not be released for sale in the U.S. until March. While it is doubtful that the struggling BlackBerry will be able to make a meaningful dent in Apple's numbers, as the earnings release showed, a few million units can matter; the 47.8 million iPhones referenced above fell short of the 50 million that many were hoping for from Apple. Remember, since we are talking about the immediate path of the stock, the competitive forces that play out in the next month are critical.
Additionally, Apple just announced that it is releasing a 128 GB iPad to meet some of the storage concerns of business users. The larger capacity is specifically targeted at users that have large memory requirements, and it's a positive for Apple because it can capture a stronger margin while remaining competitive. The device is set to be released just days before Microsoft (MSFT +1.73%) releases the new Surface Pro tablet on Feb. 9. The fact that Apple is signaling the importance of enterprise users is a positive.
Negative catalysts
The flip side of the large capacity iPad announcement coin is the fact that the Surface Pro is set to be released. While I think that the device has the potential to be a disruptive force over the long term, any type of positive reception has the potential to hit Apple shares hard. The market has been overlooking positive news for the company and hammering it on bad-to-neutral news. If the Surface Pro has a successful kickoff, particularly in the press and blogosphere, investors may take the stock down, even if the move is only temporary and even if it is only to send a message.
The way Apple has been reacting to news lately, it feels like anything short of negative reviews of the Microsoft device threatens the immediate path of Apple shares. Given my positive outlook on the new Surface Pro and its ability to change the entire mobile computing landscape, I see it acting as a real negative catalyst.
The other, more systematic risk facing Apple shares is the overall strength in the stock market. The major indexes have not seen these levels since 2007. This opens the door for a healthy correction before the market tries to push higher, and it feels like that is on the horizon. A general sell-off by the broader market will almost certainly take shares of Apple down as well.
Regardless of the overall view you may take of the market, it has rallied significantly and is due for a breather. Fools are not market timers, but this does not preclude being vigilant about the current state of stocks relative to where they have been. Taking a long-term view does not require being blind to the immediate position of things.
Which handle wins the tug-o-war? 4 or 5?
I continue to believe that with a P/E ratio of 10.4 and a dividend yield of 2.4%, Apple remains one of the most attractive core holdings on the market. With that said, I am looking for the stock to stumble once or twice more before heading higher. Apple needs to shake loose the remaining bulls before bear-hunting season opens for business.
The Surface Pro release may shake things up on Feb. 9, and any market weakness will take shares lower as well. The company maintains its longer-term leading role, but caution is prudent over the coming days and weeks. Ultimately, if you can buy shares before $425, they are a bargain, but I still think we touch $400.
