Don't Get Too Soured on Apple

 | Dec 06, 2012 | 11:14 AM EST  | Comments
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Is Apple (AAPL) the market? Is it more important than the market? This single stock has become the sum total of this tape. In fact, the market seems to have become the tail to Apple's dog.

Let me just say this for the record: This is all nuts. Apple has become a story of the holders, not the products. It is the chart, not the financials. It is a story of fear, not of opportunity. It's about the basic soul of what I always care about when it comes to the market. That is, it's about individuals who don't know what they have, don't know how to value a stock and can't think straight -- because, alas, the stock is going down. When it was going up, it was the stock to buy. Now that it is dropping, for whatever the reason, it's the stock to sell.

Now, remember, the tax code says to sell. If I owned it in a taxable account and I had a big gain, I would feel this is a fantastic opportunity to pay a lower tax than I would in a couple of weeks.

Given that I think many people own Apple in their taxable, or "mad Money" accounts, it might be uniquely in the crosshairs of the "fiscal cliff" issue. You combine the greatest capital-gains generator with a change in the tax code of uncertain proportions, and it is almost impossible to justify not selling. Those people then impact the chart, and then the chartist signals "code red," which then causes the institutions to worry that the stock can bring down their performance -- which then brings more selling.

It is a vicious cycle down, the other side of the virtuous circle up, and it makes a ton of sense.

But let's talk about what can happen here. At year-end, it will be too late to sell to get the tax break. Weak holders should have blown out by then. We will also find out, I believe, that Apple's going to be able to put out 10x more iPads, since the device is supplanting the personal-computer market. The iPhone may have generated bigger sales in the U.S. than we'd thought, and might start taking share in China.

Plus, an oh-my-God product might be on the way.

Now, one thing can't change. The market capitalization can't go down as much as what would be "safe," since we don't like companies that dwarf everything. Think about how much is lost in 24 hours, at least at the low: the equivalent of four companies valued at $10 billion. That's when you know that there's simply "too much" market cap to deal with.

But, as it goes down, the $100 billion in cash (and growing) becomes an increasing percentage of the company. The price-to-earnings multiple, the apples-to-apples valuation, will become the lowest in the whole S&P 500. Yes, that can happen. The valuation could become so cheap that it would be too compelling for informed investors not to own it. The chart would be meaningless at that point.

So, sellers, keep all that in mind.

Right now the calendar, the chart and the weak hands are all against you. Four weeks from now, they'll be in your favor. To me that says it might be too late to sell. If the stock visits the low $500s again, it'll be time to buy.

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