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Time to Sell Apple

Apple has seen its profit slide for three straight quarters. The stock is down $80 from a year ago (down 13%). When Apple introduced two new iPhones in August many believed that both sales and profits would rise. IPhone sales are in fact up but iPad sales are not and sales of Macintosh computers are off. Profit was seven and a half billion for the quarter as opposed to eight billion two hundred million for the same quarter last year. With echoes of Microsoft in our ears is it time to sell Apple? Fundamental analysis of Apple must include not only its hot line of products but also the depth of the market to which it can sell. Apple keeps its profits high by making great products and pricing them on the high end. So long as buyers believe that the price is worth it Apple products will see and create profits. However, this is not necessarily a recipe for continued growth. Thus we wonder if it is time to sell Apple or just when that may be the best bet.

Turning from a Growth Stock to a Stalwart

We mentioned Microsoft in bringing up the issue of whether or not it is time to sell Apple. Microsoft grew over 2000 fold before falling during the dot com bubble burst. Thereafter the stock has traded in the 40 to 30 to 20 to 35 dollar range. It pays a good dividend. However, Microsoft is no longer a growth stock. The same may still apply to Apple. If you are in Apple and consider it a growth stock it may be time to sell Apple. On the other hand if you like strong dividend stocks that control their sector of the market Apple may well be a good bet for years to come. If you like investing in companies with cash Apple is your baby. There are many ways to build a margin of safety for a company but money in the bank is probably the best. At nearly one hundred fifty billion dollars Apple has roughly a tenth of all the cash reserves of all US companies.

Memories of Debt

As rich as Apple is today it is easy to forget when Steve Jobs went hat in hand to Bill Gates to get a $150 million cash infusion to keep Apple afloat. This was just fifteen years ago. Currently Carl Icahn is trying to convince Apple to buy back stock and take on debt to do so. In our opinion this will not happen. Apple was too close to oblivion within the working lives of many of the top folks at Apple and the huge cash reserves that the company has built up are likely intended to insure that they never need to beg for money ever again. Beside, roughly two thirds of their reserves are offshore and to repatriate those reserves Apple would need to pay roughly $30 billion in taxes. Apple will likely remain very profitable but not grow all that much. Thus it may be time to sell Apple if you only want a growth stock and time to purchase more if you want a strong company with good earnings into the far distant future.

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