Apple energizes our Inner Guru

by Wayne Ferbert on July 24th, 2013

Apple is a large part of the major market indexes – and as a result it tends to move the indexes we use for our asset allocations. It is 2.5% of the S&P500 and 11.5% of the NASDAQ 100. It is also 13.1% of the XLK – the largest technology sector ETF.
 
These levels are all down materially from when Apple hit its $700+ high. In fact, the level as a percentage is down even this year as the sectors and indexes have rallied while Apple has faltered even more.
 
Today, Apple probably put a little bit of a floor in to its stock. The earnings release showed that the company can still sell a lot of iPhones – which is really the straw that stirs the ‘earnings drink’ for them. At the same time that they put a floor in to their stock with solid iPhone sales, they also probably lowered their ceiling some.
 
Apple’s non iPhone product lines all faltered some this last quarter – which has extended the weakness in that area. Without some innovation on a new product front or within the existing product fronts, the ceiling on Apple is starting to look like $500 per share. The good news: the floor is starting to look like about $380 to $400 per share.
 
With todays $21+ move to the upside, we are squarely in the middle of that floor and ceiling.
 
We know that Apple will probably re-test its recent lows. It has only dipped below $389 per share twice. Both of those occurrences were in the last 3 months. Look for Apple to possibly re-test the $400 levels again in the coming months as traders and money managers have a tendency to whipsaw this stock around.
 
If it does run below $400 per share again, consider being a buyer.
 
Remember that at Buy & Hedge, we rarely buy individual stocks. It only happens when we are looking to exercise our ‘Inner Guru’. We are confident that Apple will continue to sell many mobile devices in the next 5 years – and that expected product sales puts a confident floor in this stock price.
 
We are confident, if not opportunistic, buyers at anything below $400 per share. And we would not be surprised to see Apple test those levels in the next 3 months.


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