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Tuesday, October 18, 2011

the freak occurance

AAPL takes a hit due to its analyst estimate miss. Looking back Apple's 3rd quarter guidance, the company guided for $5.50 versus 7.05. But we know their guidance always underestimates expectations, even as they crush their guidance.

Anyone thinking, because of this analyst estimate miss, the company is no longer the company that it was, is very wrong. (And I am sure plenty of people are feeling this way, which is providing opportunity.)

The street has never seen a situation like Apple. Usually, the stock trades a head of exponential earnings growth, and the stock valuation gets very extended. This has not happened with AAPL. Apple's valuation has been consolidating on the way up.

With the lack of understanding, and its size, comes my expected market multiple of the stock.

There is a reason I started with Apple's last quarter's guidance in this post.  Apple's 4rth quarter guidance is $9.30, above the 8.98 estimate. (I guess an investor can view it as a give and take.)

If a trailing PE (minus cash) of 13 is allowed, AAPL stock should be at 446, today.  (A multiple of 13 for Apple businesses factors in a slower growth rate, obviously.)  So I am comfortable expecting AAPL to see 450 by the end of the year.

With a stock price of 396, its trailing PE, backing out the cash is 11.2.

As highlighted in a previous post, I would have maintained a light position going into earnings. (This would mean 2 Jan 410 call options.)  From this decline I would add in the AM, to the Jan 400 call options (also repositioning my current position), near the 10SMA.   Leaving me with 4 Jan 400 Call options.

The negativity alone should keep pressure on AAPL near 390-400 until the market players realize next quarter's guidance exceeded the street's estimates ($8.98).

If we see the market acting crazy, I would not be surprised to see the 90 SMA. (If this was achieved I would reposition the call options to either the 380 or 390 strike, but too soon to tell.)

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