Has the demise of Apple begun?

Apple Inc. (AAPL) has been one of—if not the—hottest stocks of 2012. Shares rocketed from $405 a share on December 30, 2011 to more than $636 on April 9, 2012. That’s an incredible 57% gain in a little more than three months.

It seemed like nothing could stop the company as investors piled in and analysts raised per share estimates to over $1,000.

But no company can sustain that kind of momentum forever and as the enthusiasm waned, AAPL shares find themselves back under $600 a share and investors have begun to question if it’s time to take profits.

In today’s special earnings edition of Market 360, we’re going to take a look at this tech giant and decide if it’s time to double down or clear out.

What Apple’s Pullback Really Means

The big question with Apple is if after its 57% run is a 10% pullback normal or is this a sign that the end is near?

Let me be clear. While the company may not be able to sustain 50%+ gains every three months, the end is no where in sight.

There are three reasons for this—products, the dividend and stock buybacks.

1) Must-Have Products: Apple has a cult-like following when it comes to its products. People around the world will gladly stand in line for hours, even days, to be among the first to get their hands on the next generation of products. It has become such a phenomenon that other companies have started to parody this achievement by showing how ridiculous it is to wait in line. However, I don’t think it will keep one person from bundling up and packing a tent to sit in front of their local Apple store when the next iPhone or iPad comes out.

You can call me a geek if you want, but I was one of the first to pre-order the iPad 3 and simply had to have it on the first day possible. And when I opened that package I had a moment of disappointment. There wasn’t anything new or exciting about the device—until I turned it on.

The graphics and the 4G capability was clear, fast and unlike anything I’ve seen and once again I became one of Apple’s biggest fans.

This is exactly how generations of Apple users are going to feel as we get new iPhones and iPads and TVs and anything else this innovative tech giant can come up with.

2) The Dividend: We all think of Apple as a trendy company. The technology and accompanying accessories—ear buds and armbands—seem very youthful. But Apple has made some very mature decisions about the type of company it wants to be and one of those decisions was to pay a dividend.

Back in March, Apple announced that it would begin paying a dividend in its fiscal fourth quarter. Management would pay our $2.65 a share or 1.8%. It may not be the largest dividend I’ve ever seen, but it absolutely adds some stability to the stock. Tech companies that have been on a solid profit run can hit patches of volatility that are hard to recover from. A dividend payment evens out that noise and keeps investors from jumping ship during short-term difficulties.

3) Buybacks: Another very grown-up thing the tech company has done is to institute a $10 billion stock buyback program that will start on September 30, 2012. When a company buys back its stock, it reduces the shares outstanding and boosts earnings per share. This is great news for investors and for the company. Apple will have an easier time sustaining growth rates and now that the company owns more shares it is actually earning more money on them through the dividend than they could earn in any bank.

So, is Apple on the way out? Nope.

There is too much going for this company with smart management decisions, solid product development and an expanding market share to jump ship.

While there may be some volatility leading up to the next product innovation or creation, I see Apple as a trillion dollar company in the next three to four years and the only way to cash in is to buy shares now.

And I think when earnings are released after the market close today the company should get another boost. Expectations are for 49% sales growth and 57% earnings growth! I’ll be back in touch through our Daily Blog if there are any surprises, but I expect great things from this company.

Get Ready for Another Earnings Deluge

Now, this is what investing is all about. When big-name companies report earnings it lights a fire under investors as they start snatching up stocks that can post solid sales and earnings figures.

And while this week hasn’t started off on the best foot, there are a number of earnings announcements that are sure to make headlines. Here’s my take on the 10 big-names to watch this week:

Boeing Co. (BA) reports on Wednesday and expectations are for 23% sales growth and 19% earnings growth. The company has a strong history of earnings surprises, but analysts aren’t quite as excited about this quarter as they have in the past and buying pressure is weak. I rate this stock as a hold.

Dr Pepper Snapple Group (DPS) also reports on Wednesday and I love this company. I’ve recommended this company to my Blue Chip Growth members for the last year and while we’ve made some nice double-digit gains, the 3.4% dividend payment has been fantastic. This is a safe beverage company with solid fundamentals across the board. I rate DPS a buy.

Also on Wednesday is Harley-Davidson Inc. (HOG). With the weather warming up, I’m starting to see the bikers hit the road and have been hearing that signature roar from Harleys lately. As for the company, HOG has had some trouble with earnings surprises and sales growth lately. But buying pressure has been solid, lifting the stock 37% in the last year. This company is a bit of a mixed bag and I rate it as a cautious buy.

Altria Group Inc. (MO) will report on Thursday and while it doesn’t look like the company will have a blowout quarter with 1.7% sales growth and 11% earnings growth, I love the steady 5.1% dividend and the steady gains from this tobacco company. The two-year chart for MO is spectacular and I expect more of the same. This is another Blue Chip Growth stock that I rate as a strong buy.

On the other side of the spectrum is Revlon Inc. (REV). This beauty company doesn’t pay a dividend, does not have a strong history of earnings surprises or growth and hasn’t done much to get analysts excited about its upcoming earnings report on Thursday. The only bright spots are cash flow and the buzz that the rejected bid for Avon Products Inc. (AVP) brought to the sector. I don’t recommend buying either company.

In the healthcare sector, Eli Lilly & Company (LLY) and Bristol-Myers Squibb Company (BMY) will report earnings on Wednesday and Thursday, respectively. And Merck & Company Inc. (MRK) will report on Friday. Of the three, I like BMY better. BMY has one blemish when it comes to earnings surprises, but gets high marks in nearly every category. LLY, on the other hand, gets failing grades in sales growth, operating margin growth and earnings growth–all are critical components to earnings season success. MRK has below average earnings growth, earnings momentum and sales growth. If you want a play in this sector, BMY is the better choice.

Last on my list of stocks to watch this week is Starbucks Corp. (SBUX). I profiled this stock last week and gave the stock my full buy recommendation. The company is clearly the big kahuna when it comes to coffee. Travel to any major urban center in the U.S. and I can guarantee that you’ll only be a few blocks away from a Starbucks location. In terms of fundamentals, the company could firm up its earnings growth and surprises, but buying pressure, return on equity, sales growth, operating margin growth and the fact that the company has a cult-like following make this company a strong buy.

If there are any major earnings developments this week, you can be sure that I’ll be in touch immediately with another Market 360 update and through our Daily Blog. So check your email and NavellierGrowth.com regularly for updates. Until then, if there’s a stock you’d like to get my buy/sell/hold recommendation on this earnings season, log on to my free stock-rating tool, Portfolio Grader for my current advice.


Louis Navellier

Louis Navellier

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