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Apple Inc. (NASDAQ: AAPL) will report its December 2007 quarterly numbers after the close on Tuesday. Consensus estimates call for revenues of $9.3-9.4 billion and earnings per share of $1.55-1.60. Stories circulating on many trading desks suggest that Apple could have topped $10 billion and earnings could range between $1.80 and $1.85. In this environment, will it really matter how much Apple exceeds expectations? It depends.
It depends on the most important statement the company can make: guidance for the first two or three quarters of 2008. In a normal growth-investing environment, if December results did top $10 billion and EPS around $1.80, the stock would be off to the races. But in this cautionary environment, the investor sentiment is only about guidance. What's the outlook? Does Apple see a slowdown? In the United States? In the rest of the world? What about inventory levels? Component pricing? You get the picture.
Portfolio managers and hedge funds I speak with love the name going forward, no question, and Apple has distinguished itself with cutting edge products and incredible margins. As one manager put it to me, "I loved the stock at $195, I still love it here at $161. What's changed? Nothing, just investor sentiment." He is right. Growth stories that are executing on their key fundamentals are not getting the "current credit" for these feats. The investing community has turned to defensive investing and is not hesitating to take profits where they exist.
Several veteran portfolio managers I have worked with over the years and speak to frequently are trying to pick their spots to add selectively to key, long term growth names. Google Inc. (NASDAQ: GOOG) has come off $150 from its high of $747. As one manager bluntly told me "this stock has $1000 written all over it. But it will probably see $525-550 first!!" Another manager is confident that Apple's numbers may actually signal a near term bottom and "get this market stabilized and running up again. Apple could run up $25-30 this week -- at least I hope." I am glad to hear there is still some optimism out there.
So get ready for Apple's conference call after Tuesday's close and keep in mind the victory lap on the 4th quarter numbers (actually Apple's fiscal 1st quarter, as Apple has a September 30 fiscal year end) may be short lived. But remember that stock performance follows earnings growth in the long term, even though sometimes stock performance and earnings growth are not in a timely sync. But eventually, they do align!!
Georges Yared is the CIO of Yared Investment Research and author of " Baby Boomer Investing...Where do we go from here?"
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Reader Comments (Page 1 of 1)
1-21-2008 @ 4:56PM
Beltway Greg said...
George,
I'm calling for $1.83 and have been for some time. Tomorrow we will see how much the earnings are affected by the revenue stream. Usually, I pick up a few thousand shares before the announcement but this time I'm standing still. I just returned home from an Apple store and the thing is still packed. Monday afternoon, regardless of the holiday, and it's still packed. (Bought an AirPort Extreme) If you have a position I'd advise to stay in place. If you feel lucky, and my attitude may change before tomorrow afternoon, you may make 20-23 easy points. It all depends on Asia this evening and Europe in the morning. The real story about this period in time is going to be how the emperors (China and India) are naked. That economist from the World Bank who released a report and stated that the 30 largest emerging countries are three times as important as the United States is going to look a bit goofy this time next year. Apple will make it to $260 by Dec. of 08 and if history repeats itself, perhaps a bit earlier.
Beltway Greg
No rules, just right.
1-22-2008 @ 5:18AM
Peter, The Peter Files Blog of Comedy said...
There may be some concern among investors hearing rumors that Apple's lucrative iTunes store may not be carrying as many artists this year as last, however, it is likely that this may be offset by added revenue through the introduction of the movie rental option and the price drop in Apple TV that Jobs just announced.
Last year's announcement of the iPhone was such a large and exciting breakthrough that almost any announcement this year was likely to be seen as a denouement, with resultant emotional rather than rational price declines. However, it remains to be seen what the true market is for the sexy-looking but perhaps not sturdy enough ultra-thin new laptop.
Will it hold up to the abuse that hard core road warriors need it to?
Will the keys and keyboard feel right?
Until enough buzz from touchie-feelie contact with the device has been generated by early adaptors it is hard to say what the real impact of the new laptop will be. I found myself much more attracted to Apple TV with the price break than before.
Until then, Apple continues to have the sexiest equipment for music and business, the best and smoothest operating system, and cash cow in the entertainment industry that just isn't quitting. It may not be recession proof, but it sure beats a lot of other options this year.
Peter, Chief Editor and Prognosticator
The Peter Files Blog of Comedy, Satire, Jokes, Commentary and Videos - With Absolutely No Qualifications To Comment On The Market!
Http://thepeterfiles.blogspot.com
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