Apple of the Markets Eye
Research for Online Investors

by John Dalt

10/20/09

Apple Inc. (AAPL) knocked the socks off analysts last night.  AAPL sold 7.4 million iphones in the third quarter, and beat earnings estimates by 47%  ABC News has the story, “Investors Lap up Apple’s 47 Percent Profit Jump.”  Should you buy AAPL today or tomorrow?

If we take last quarter’s earnings of $1.82 and projections for next quarter of $1.78 per share and double, we come up with annual earnings per share of $7.20  Earnings for the last fiscal year (that ended Sept. 26) were $5.36 per share.  $6.28 would split the difference and represent a 17% increase in the bottom line year-over-year.  AAPL is trading at $200 this morning, that puts its price earnings ratio at 31  AAPL’s highest close is $199.83 set on 12/31/2007

I wish we would have recommended AAPL last winter and spring when it lingered under $100 for five months.  We did not, and will not now, not at 31 times earnings.  Then again, the auction price is set by what someone else is willing to pay, and other sellers are willing to take!

While reading news this morning, a quote from Alan Greenspan on Sept. 9th jumped out, "The US economy may witness double-digit inflation in a few years unless the central bank tightens up its monetary policy… Unless we roll in this whole degree of expansion, we will be in trouble… I am not talking 3-5 per cent inflation; I am talking double-digit inflation in the US.”

Greenspan was not able to take away the ‘punch bowl’ in the middle of the party, and Bernanke won’t be able to either.  Greenspan has been blamed for keeping interest rates too low, and overheating the housing market.  He warned congress of his concerns in 2005.  Did they listen?  Imagine the howls if he would have pushed rates higher.

Was it too much regulation, or not enough?  Did the housing bubble occur without any warnings?  Here is a short video put together, that proves facts can be dangerous things.  Pols need to be careful what they say, once preserved on video, they can come back to haunt you.  Just ask Franklin Raines, CEO of Fannie Mae, “These assets are so riskless, their capital or holding them should be under 2%.”

T he sad thing is they all made money, driving the bus off the cliff.  Enough of re-living the past, but we need to remember how it all happened, because the shell game continues.  The names change, the industries rotate, the pols stay same.

In the mailbag:
“I just wanted to say that I'm a new member but am very much enjoying your emails. I couldn't imagine one reason why the market is so high. It makes no sense. We are not in a pretty place. Covering shorts helped me to put a little perspective into the market.”---Subscriber C.C.

Thank you for writing; it is nice to hear when a letter strikes a chord with our readers…

“Good advice today.  There is no actual recovery happening in our economy, but the media is selling it like there is and people believe it.  You could be "correct" and sell stocks because our economy is fundamentally unsound, but that wouldn’t be "correct" because stocks are going to go up as long as people believe things are ok (and as the dollar drops).  Your 20% loss cutoff is a good way to ensure you don’t have to call a top, but still protect your profits; it’s a really good hedge during an irrational bull market in my opinion.  You'll 100% of the time miss the actual top (by about 20% or so), but you'll never lose money and you'll always get a pretty good chunk of the run up.” ---paid up subscriber C.Ho.

We can still lose, if we recommend a stock and it goes down 20% we sell.  Long-Term, this discipline does just as you say.  It also protects us on individual stocks.  If one company loses its mojo, we jump out, regardless of the bigger market action.  Undisciplined investing is akin to gambling.  Something I enjoy, but have no illusions about my eventual destruction.  Thanks for writing…

The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here.  Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.  The editor may have held a position in a security earlier, or in the future.

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