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Playing the Apple debacle

By Greg Guenthner ·
Monday, February 11, 2013
Posted: 12 pm ET

It created the most recognizable, game-changing consumer tech products on the market. A charismatic leader helped turn its commercial success into a cult-like following and incredible profits. In short, it was a company that could do no wrong during a decade where little was right with the economy.

And for nearly a decade, Apple Inc. was by default the one must-own stock on the market.

How quickly things change.

Five months after its share price topped out near $700, the company can't seem to catch a break. Its stock has sunk below $500. Investors have reacted unfavorably to recent earnings and estimates. Now, famed Greenlight Capital manager David Einhorn filed a lawsuit to keep Apple from eliminating preferred stock. He also wants the company to return some of its $137 billion in cash reserves to investors.

So how should you react to Apple's speedy fall from grace?

It's simple -- just stay away. At least for now.

Analysts and pundits have come out of the woodwork in droves to defend Apple as the stock has dropped. They point to the company's cash generation, strong sales of newer products such as the iPad Mini, and massive smartphone and tablet market shares.

They're right on all counts.

Apple is still running a great business. But right now, the company and the stock have gone their separate ways. That happens sometimes when major trends are broken. A big, multiyear run in a popular stock winds down as longtime holders sell for a profit, while late buyers run for the exits to cover their unexpected losses. A chain reaction of selling pushes shares far lower than anyone expected them to go.

Fundamentals don't matter during a sudden shift in sentiment. That's why it's best to stay away and let the stock find a price floor before making a value argument. "It can't possibly get any cheaper" is a dangerous statement when a stock is behaving like this.

Still, it's important to remember that Apple is still a huge, profitable company. It's safe to say they won't be packing it in and putting their California headquarters up for sale anytime soon. The company will make products people will want to buy -- and the profits will continue to roll in.

Even activist shareholders see a bright future for the company.

"We own more Apple today than we ever have before," Einhorn told The New York Times. "We’re optimistic about the company's prospects and think too much bad news has been priced in."

Patience will pay off. Apple stock will give investors plenty of buying opportunities soon enough.

Greg Guenthner, CMT, occasionally blogs about investing at Bankrate. The views expressed are entirely his own and do not reflect those of

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