APPLE - DOWN BUT NOT OUT

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Apple Inc. (AAPL) stock dropped sharply Mondayclosing at $501.75, down $18.55.  Tuesdaymorning opening was $$498.30 and as of 11am EDT it is currently trading around$489 per share.  Shares hit a record highof $705.07 on September 19, 2012.

The WallStreet Journal reported Sunday evening that Apple had cut orders for iPhone5 parts last month by roughly 50 percent, signaling a lower demand in thedevice than they had predicted.  Thiscomes at a time when the company is facing increased competition from othersmartphone makers who have eroded Apple’s market share.  In the last quarter of 2011 Apple held 23percent of the worldwide smartphone market share.  During third quarter 2012 Apple’s marketshare had dropped to 14.6 percent. Samsung Electronics has overtaken Apple as the dominant smartphone manufacturerwith 31.3 percent market share in the third quarter 2012, up from 8.8 percentin 2010.

But hang onto those shares becauseas CNBC is reporting, Jefferies’senior technology analyst Peter Misek puts the situation into perspective.  "We look at it as a little bit of aletdown obviously. It's not great that this happened. We thought this devicewould be the biggest seller of all time and in fact we think around 50 millionunits sold in Q4, which would make it the biggest selling electronics productof all time in a quarter," Misek said. "But there were hopes that itwould be better than that. There were hopes that in Q1 that sales would be flatand instead what we're getting is a seasonally type decline in Q1." Misekexpects first quarter iPhone builds to be between 35 million and 40million.  Jefferies is expecting Apple’sstock to reach $800 per share, in part due to their substantial cash reserves."If we look at the full year out, we think that the company can dosomewhere around $50 of earnings, remember they have $100 per share of cash. Bythe end of next year they'll have somewhere around $150 per share ofcash," Misek said. "So what you are doing is you are actually buyinga stock that effectively is $400 and we think at $50 earnings for the year thatit is a cheap valuation."  Applealso has new product launches planned for this year and may be making a dealwith China’s largest cellular phone carrier, China Mobile.

What all of this shows us is thatApple simply overestimated demand for the iPhone 5 and is now adjusting theircomponent purchases.  However they stillreached a milestone sales number for fourth quarter 2012.  Therefore the drop in price is most likelydue to skittish and uninformed investors dumping their shares at the slightesthint of trouble.  We do not believe thatnow the time to sell Apple stock; on the contrary it looks to be a good time tobuy.