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Monday, April 23, 2012

some thoughts... AAPL and market

1. AAPL - Through out this earnings season we have seen an early trend of 'sell-the-news', which produces a severe multiple contraction. AAPL appears to be front loading this concept before they report.

Current analyst estimates are at $10.00. This is about 17% above Apple's estimates of 8.50. Apple should beat this number. Apple typically beats their own estimates by 24% or so. Given the huge momentum they have, I would not be surprised to see the numbers come in closer to the blogger estimates of around 12.

IMO, at current prices for AAPL, the only way it sees a serious sell off is if it meets or does not beat analysts expectation.  At the 560 price, a lot of negativity is priced into the stock.

Think about what the market is say if AAPL maintains the stock price of 560. If Apple produces analyst expectation, the market will give it a trailing multiple of 14.5. This is the perceived value the stock had PRIOR to its monster 1st quarter run. I do not agree with the market sentiment, but it is consistent with the performance of other large faster growing tech stocks.

2. the market - While weak, there is obvious strength within financial, energy and industrials.  These sectors appear to be supporting the market at the moment.

The support from financials makes sense as there are a slew of key support levels at today's lows. Also, the divergence between book value and stock price is pretty high at the moment.  With now financial shock to the system, current levels should be the banks low end trading range, until normalized earnings become visible.

The support from industrials and energy may make sense because the HSBC China PMI is improving. (We all knew Europe's PMI was going to be crap.)

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