November 19, 2012 at 01:43 AM EST
What’s the Matter with Apple?

Matter with AppleWhat the heck is going on with Apple Inc. (NASDAQ/AAPL)? The stock has corrected 25.5% since trading at a record high of $705.00 on September 21.

Don’t panic yet, as my stock analysis is that we are seeing some portfolio adjustments and profit-taking by institutions and retail investors prior to the year’s end.

Fundamentally, nothing has changed, based on my stock analysis.

I still consider Apple to be one of the best stocks in technology, but the company is clearly facing increased competition in the lucrative tablet, mini-tablet, and smartphone markets.

The stock does have an attractive valuation of nearly nine times its estimated fiscal 2014 earnings per share (EPS) of $58.66 per diluted share, which is Thomson Financial’s consensus EPS estimate. Its price/earnings growth (PEG) ratio of 0.5 is a cheap bargain, based on my stock analysis.

The chart shows a challenge at the 50-day moving average (MA). Failure to hold could see a breakdown of the upward trendline, followed by a potential downward move to the $400.00 level, based on my technical analysis.

Apple Chart

Chart courtesy of www.StockCharts.com

My stock analysis is that there are clearly some concerns that Apple may not be able to continue on its merry way. Chief rival Samsung sold a staggering 97 million mobile phones in the third quarter, well above the 23 million “iPhones” sold by Apple, according to Gartner. A recent Forbes article suggests that the success of Samsung is due to its much broader assortment of available phones versus Apple’s single phone. (Source: “Samsung Extends its Lead Over Apple,” Forbes, November 15, 2012.)

I’m not ready to throw in the towel on Apple; in fact, my stock analysis is that any major weakness could be an investment opportunity to accumulate shares at a price not seen since March 2012.

Apple makes much better margins on its products, and with the possible entry of a cheaper iPhone; it could gain some market share from the likes of Samsung, based on my stock analysis.

My stock analysis is that Apple is king of the lucrative tablet market, which is estimated to rise to around $31.9 billion this year with over 100 million units delivered. (Source: Visiongain, last accessed November 16, 2012.) Based on my stock analysis, the market may be much bigger, as evidenced by the faltering demand for personal computers (PCs). (Read “Trust Me: Declining PC Demand Is Killing Chip Stocks.”) By 2016, it’s estimated that about 360 million tablets will be sold. (Source: HIS iSuppli, last accessed November 16, 2012.)

But my stock analysis suggests that Apple cannot let its guard down, as we are seeing the launch of many really good tablets, including the “Surface” by Microsoft Corporation (NASDAQ/MSFT), the “Galaxy” by Samsung, and the “Nexus” by Google, Inc. (NASDAQ/GOOG).

I feel that Apple has an excellent strategy: the company will market its “iPad mini” to compete with the small-tablet market that includes competitors Amazon.com, Inc. (NASDAQ/AMZN), with its “Kindle” tablet, and Barnes & Noble, Inc. (NYSE/BKS), with its “Nook.” Yet it will not be easy for Apple, as the iPad mini’s price point of $329.00 and up is more expensive than its competitors’, including the $199.00 “Kindle Fire” made by Amazon.com and Google’s $300.00 “Nexus 7,” powered by “Android.”

For the time being, my stock analysis tells me that Apple is still king of tablets and smartphones, but the marketplace is becoming extremely crowded.

The decline in share price seems like a bargain, but the risk is that when a stock has advanced as much as Apple has, there’s still the risk of more downside moves.

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