Apple: Rotten or Ripe to Buy?

Over the last four months, Apple Inc. has lost over $240 billion in market value -- more than the value of most companies traded on Wall Street. This has caught many Apple lovers by surprise. Rather than do a full investigation into what prompted the sell-off, many are just screaming on the stock boards that this is a buying opportunity. (Be aware that part of that is desperation. Many have lost 36 percent of their investment in just four months -- some to the tune of millions.)

If you are looking only at the price to earnings ratio (10), and the fact that the company is trading at a 52-week low, you'll easily come to the conclusion that Apple is ripe to buy. However, if you move on that assumption, you will be missing some key data, which caused the sell-off in the first place.

Below are five key points to consider before you click the buy key for Apple stock.

1. Samsung smartphone sales
2. Weak earnings guidance
3. Consumer loyalty
4. Weak GDP report on Jan. 30, 2013
5. Credit Downgrade by Fitch Ratings in 2013? (August?)

Before I dig into the details, I want to remind you that successful investing in individual companies requires three steps -- particularly in today's volatile marketplace.

The 3-Ingredient Recipe for Cooking Up Profits

1. Start with what you know
2. Pick the leader (using a Stock Report Card and by asking the Four Questions)
3. Buy low; sell high (easy to say; hard to do)

Get additional information on how to use this recipe successfully in my book, You Vs. Wall Street and by attending my Investor Educational Retreat. It is has been winning on Wall Street for more than a decade now.

Apple lovers think that Apple is the clear leader and that the price is low, and that is that. However, anyone coming to that conclusion has not used the tools of the Stock Report Card and the Four Questions. They have completely missed the news that Samsung is now the smartphone leader. And they have not listened to Apple's own warning that, in the next quarter, earnings are going to be weak.

And here are the details on the five considerations.

1. Samsung smartphone sales. According to the International Data
, there were 219 million smartphones shipped worldwide during the last quarter of 2012 -- an increase of 36 percent over last year. Samsung sold 64 million (for a 29 percent market share), while Apple came in second with 48 million iPhones shipped (for a 22 percent market share). In sales, Samsung is number one.

2. Weak earnings guidance. Apple's 1Q 2013 earnings report included
forward guidance that the company expects $41-43 billion in revenue next quarter. This marks the first time since the Apple renaissance that sales growth will be in the single digits -- 5-10 percent. And that after everyone was expecting that the iPhone 5 would blow the competition out of the water.

3. Consumer loyalty. While Steve Jobs was alive, there was a push to
make him a rock star in the eyes of consumers. However, in 2012, over a quarter of a million Apple lovers signed a petition demanding that Tim Cook improve the labor conditions in Chinese factories. Another common complaint is that the face of the iPhone cracks when dropped. Most analysts say that the migration away from iPhones is all about price, however, that never stopped sales before. Will Cook be able to lead the company successfully through its first real crisis since Apple created the smartphone market?

There are two additional considerations that are market-related, rather than company specific.

4. Weak 4th quarter GDP report. On Jan. 30, 2013, the Bureau of
Economic Analysis will release its advance estimates of the 4th quarter 2012 GDP growth. (The numbers were not available as of the writing of this article.) If the Federal Reserve Board members predictions are accurate, the report will be a disaster, with GDP growth coming in near or under 1 percent. When GDP growth stalls, investors tend to react negatively, which could drag Apple stock down even further. There are a lot of if's in this paragraph, and we'll know more once the report is issued. However, this should be of enough concern to pause the buy plan, at least temporarily.

5. Credit Downgrade by Fitch in 2013? (August?) Congress could surprise
everyone with a "credible medium-term deficit reduction plan that would be consistent with sustaining the economic recovery and restoring confidence in the long-run sustainability of U.S. public finances," which is what Fitch Ratings wants to keep the U.S. credit rating at AAA. However, if you've been watching the same political shenanigans I'm seeing, then I wouldn't hold my breath on this. The last credit downgrade, by Standard and Poor's, came in August of 2011. It sank the markets by 16 percent, and then held them there for months. This could create a buying opportunity for patient buyers, or a nail-biting opportunity for quick-trigger buyers. I'm predicting that this bad news, if it occurs, will happen in August, when most of the Wall Street hot shots are on holiday (like it did in 2011).

If you'd like to listen to my radio show on this topic, go to

Full Disclosure
For anyone who is interested, I own an Apple iPhone, but not Apple stock.