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Apple Up 47% In Two Months, Still Down YTD

1 May 2008 3 Comments

Apple’s (AAPL) stock has seen some crazy movement in 2008. Suffering investors that watched their stock plummet from $195 a share down below $120 a share, have been rewarded for their patience over the last two months. Investors that believe in the Apple story and still believe Apple’s best days are ahead took the opportunity in early 2008 to add to their positions. There is a serious lesson to be learned from the true Apple believers.

As an investor, you should target strong companies for the long term. Those who targeted Apple as long term plays merely smile when the market reacts to Apples record profits with a 40% haircut of its stock price. Why would they smile at that? Because long term investors saw a prized asset go on sale, big time.

Stocks like Apple tend to move in large momentum trends both to the upside and to the downside. The market tends to overreact to the stock again, both to the upside and to the downside. This is a good thing because it presents great buying opportunities and, if you’re inclined, selling opportunities.

Apple’s climb to $200 in 2007 was an incredible run. The plummet from that mark to below $120 was just as incredible. In 2007, Apple was probably overvalued at over $200 a share. At $119 a share earlier this year, Apple was probably undervalued. Currently, Apple is closing in on the $180 mark. Is Apple fairly valued? A case can be made for both sides of the argument. In a previous post, I discussed how Apple is bucking the trend of the consumer; however, it is hard to say if the condition of the consumer will worsen.

What This Means For the 20-Something Investor

There are many reasons why Apple is attractive as a long term investment: The multiple product lines, the almost 20 billion in cash reserves, the hype over the upcoming second release of the iPhone, and of course, Steve Jobs himself. Despite already having a market capitalization of close to $160 billion, there are many reasons to believe in Apple’s future growth. With that said, should you buy now? Not necessarily.

While it’s impossible to time the market, those who follow the movement of Apple’s stock, know the volatile moves the stock can make in both directions. In the short term, I think most of the gains for the stock have already been made; however, i could see the stock continuing its upward trend up until the 3G iPhone release (rumored for June). Following this event, I imagine there will be some profit taking and a possible correction.

As a young investor, use Apple to learn the way this type of stock moves; recognize the way the market overreacts in both the up and down directions. Learn to use these overreactions as buy and sell opportunities.

For the long term investor, buy Apple on any corrections as the company’s future looks incredibly strong.

Have a story for how you have played Apple’s stock? Tell your story below. If you have any insight or advice on investing in Apple, let our readers know. Other 20-Somethings benefit from your comments.

3 Comments »

  • AdamC said:

    I don’t mean to disparage RIM, I feel the run up in their share price is creating an opportunity for some hedge funds to short their shares in the future, I could be wrong here.
    Just thought I would like your view on this.

  • kevin duffey said:

    I’m not taking a short position in RIM, but I’m also not taking a long position. I feel the risk is too high.