My Apple Turnover

 | Apr 25, 2013 | 9:00 AM EDT
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The last time I threw my $0.02 in on Apple (AAPL), the stock was trading 25% higher than it is now. I thought the stock would move up after the year-end tax selling dried up. In fact, I was so positive Apple was going higher that I teased Doug Kass after his appearance on "Fast Money" by saying I thought he was prepping for Doomsday. Well, Doug was right and I was wrong. But that was then. Now what? For me, it's not an easy decision.

In just six months, Apple went from a growth stock to a value stock. It sometimes seems that Apple is the most hated stock on the planet. Soon, watching Apple's stock will replace sitting around all day waiting for the cable guy as American's most hated pastime.

On one hand, what else could go wrong? Management announced a $100 billion stock buyback. That has to support the stock down at these levels. How badly could you get hurt with that kind of wind at your back? On the other hand, there won't be any new products until the fall. With $173 billion revenue estimate for fiscal 2013, any new products better have a huge addressable market in order to move the needle.

In the first quarter, Apple sold 37.4 million iPhones, 19.5 million iPads and nearly 4 million Macs. Heck, they even sold 5.6 million iPods. The company ended the quarter with a staggering $145 billion in cash, which means the stock trades at about 9x forward estimates (minus cash). 

Gross margins were a sore point in the quarter. Margins of 37.4% came in below the consensus estimate of 38.5%. Management blamed strong sales of the mini iPad, which pulled down overall gross margins. Investors are concerned that Apple will need to cut gross margins to reignite revenue growth. And after the close last night, that point was driven home when Qualcomm (QCOM) reported average selling prices on phones fell sequentially to $217 from $227. Qualcomm attributed the decline to strong sales in emerging markets where phone prices are lower. Demand for smartphones is shifting toward lower priced phones, which is dragging down margins industry wide.

I think Apple's stock has hit bottom, but it's hard to see what will drive it higher (other than the stock buyback). There are plenty of other names that grow revenue 10% a year that pay a better dividend. I don't expect Apple to become the next Nokia (NOK), but you never know. To me, Apple just seems too hard to deal with right now. Whatever you do, it's not an easy decision.



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