The Daily Dose: Three Nuggets From the Apple Release

 | Oct 29, 2013 | 9:30 AM EDT
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It's an unwritten code in stock-pundit-land to follow Apple (AAPL) earnings. I have no clients in Apple and, on a deeply personal level, I absolutely can't care less about the company's numbers. Apple earnings will not solve world hunger, nor will they explain why Wal-Mart (WMT) is horribly managing its stores. Nevertheless, I take my obligation as a stock pundit very seriously, so I'll go the extra mile on Apple Earnings Day.

Here are three things I've learned.

First, Apple guided to higher costs for dynamic RAM (DRAM), but said other component costs would fall. With all that holiday volume flowing, and with costs overall seemingly trending downward, Apple's guidance sure seems conservative, most notably on gross margin. (That guidance initially spooked investors -- or should I say speculators?)

Second, sales of iPads to the education section rose 22% year over year in the fourth quarter. Hello, shorter attention spans; bye-bye, chalk! Mac sales to the education sector were up a cool 8%, compared with an industry decline of 10%. Apple clearly is in the driver's seat in this important area of the market, so much so that it's convincing a new class of humans that all competitors' products will forever be inferior. Sorry, Google (GOOG).

Third, metrics from Apple's retail stores bothered me once again, and that's why I found it very interesting to learn that the company will be remodeling 20 stores in fiscal 2014 (ending September 2014). My view has been that Apple's mall-based stores are starting to look tired relative to new designs from Sony (SNE) and Microsoft (MSFT). Design is important - don't let anyone tell you otherwise.

Source: Belus Capital Advisors

Source: Belus Capital Advisors

In Non-Apple-Earnings Analysis

Away from Apple, here's a quick take on the J.C. Penney (JCP) stock pop: The CEO is pumping the holiday hard, and this is likely to stem a near-term stock decline. Be careful about jumping on to the hype machine.

Also, please take special notice of these macroeconomic themes. First, manufacturing numbers are coming up sour:

  • September industrial production, manufacturing component: up 0.1% vs. up 0.5% in August
  • October Empire State, general business conditions: down 5 points from September
  • October Philadelphia Fed Index, current conditions: 19.8 vs. 22.3 in September
  • October Richmond Fed, shipments: down 1 point vs. September

Then there are the divergences. The market is hot, but the chart below is mildly worrying -- with the S&P 500 in blue, the iShares Russell 2000 Value Index (IWM) in red, Hershey (HSY) in dark green, Pepsico (PEP) in brown and ConEd (ED) in light green.

Is sector rotation signaling overvaluation in cyclical names, which are being inflated thanks to opinions on Federal Reserve policy?

Source: Yahoo! Finance

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