High Heeled Traders

Apple has fallen fast and furious, I’m holding some too.  But is it time to sell?  What do we do?  People can’t even understand what’s happening. Bloomberg is busy explaining, here’s one article.

On one article posted, the head of Birinyi and Associates was quoted “On Apple (AAPL), Birinyi was at a loss to explain what has sent the stock down nearly 6% in the past two sessions.
“It’s a concern to me because I don’t know what’s going on,” he said. “I like to think it’s an overreaction, but I don’t know.” I tend to think the same thing, looking at the PE it is (even before last night’s fall – already in the undervalued level at 14, then with last nights steeper fall it was 13.68. I was actually expecting that it would snap back quickly because that fall was with the overall market (oil, dollar etc not about company news itself). Anyway, it is surely diverging big time just because it happen to tip to below its 200-day moving average. I also think it’s an over-reaction because fundamentally they have very sound finances (cash hoard of 194Billion as of April this year )

In any case, we have to accept some people think differently than us — I haven’t seen an analyst downgrade Apple after it reported its results. The growth concern is misplaced, just because there isn’t much details about the Apple Watch. One product. One! How about the many other products that is forming a web of related functions that make buying one Apple product pull you in to buy another product. What the analysts calls an “ecosystem” of products.

So last night I was looking at this situation — where to put money away from Apple. One of the easiest place to look for is where there is value, so checked up on the items on my watchlist and looked at the PEs of the stocks, nothing much to consider apart from GILD which I already mentioned in a recent post. FB, Netflix, BABA, Visa, MasterCard all run PEs in excess of 17 so — not touching those as investments.

I have to admit I have to cushion myself from further fall because the Support is at $110 level and we haven’t gotten there yet. It is looking oversold to me at this point, but I admit that further weakness is possible, and the stock goes ex-dividend tomorrow, and so there’s going to be some falls yet. I’ve written a “call option” on the stock… cool my heels with a long-dated option to get some cash from time expiry.

From an emotional standpoint, it is bothersome, but having that facility to write an option, get cushioned from further fall helps. If the stock goes back up, I have the ability buy it back, enjoy the price rise and roll up to another higher-priced option. If the price falls, I keep the money from the premium and write another option — considering risks of course … maybe I will wait for the hysteria to settle a bit and a confirmation rally from Support.

Will Power, R.W. Baird analyst, was on CNBCto weigh in on this recent development and discuss the slump in the stock in the last few days. “I think it’s a combination of things. Look, I mean from a technical standpoint…breaking the 200-day moving average is probably the latest catalyst. But I think there are some lingering questions on China and I guess the proof will be in the pudding there. I think we’re still optimistic on the opportunity there.” “But as I talk to investors, I think the biggest concern is the calendar Q4, the December quarter comp. I mean, look the company had an enormous iPhone shipment quarter in that quarter a year ago. I think their questions and concerns as to whether they can really beat that. We think they can and as a result combined with other factors, we like the stock here on this weakness. So we would be buyers, yes,” Power concluded.

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