Apple: An October to Remember or Forget?

Due to historic weather conditions, Wednesday marked the first day of the week that U.S equity markets opened. It was also the final trading day of a lackluster month. In October, all three major indices closed the month lower, breaking their four-month winning streak. The technology sector (NYSEARCA:XLK) was the biggest loser with a near 7 percent decline. Shares of tech giant Apple (NASDAQ:AAPL) even finished October in the red.

When the trading cycle turns for Apple, it turns in a big way. The world’s most valuable company by market capitalization fell almost 11 percent in October, its worst single-month performance since November 2008, when shares plunged 14 percent amid the financial crisis. Just six weeks ago, Apple hit an all-time high of $705.

The decline in Apple caught many investors off-guard, as October is typically a very good month for the iGadget maker. On average, Apple’s stock has jumped by 10 percent during the month for the last nine years, according to Topeka Capital analyst Brian White. In fact, the only other down October for Apple was in 2008.

Although Apple has very bullish fundamentals, it is not immune from sell-offs. The company is trading nearly 15 percent from its all-time high, but the move is not the first of its kind. In April, Apple made a significant peak at $644 a share. Following this milestone, and all-time high at the moment, shares declined to as low as $522 in May, representing a 19 percent pullback. However, this soon proved to be a great buying opportunity, as shares gained 35 percent over the course of only four months.

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Mr. White, who is the biggest Apple bull on Wall Street with his $1,111 price target, has not been rattled by the company’s poor October performance. He explains in a recent interview with CNBC, “We have to focus on the fundamentals. I think the fundamentals at Apple are very very strong. The valuation is significantly undervalued at nine times x cash. You’ve got a company with small market share. This iPad Mini is a home run, it already takes two weeks to order these things. The iPhone 5 is a huge success, they just can’t make enough, so the fundamentals are in place.”

While Apple under-performing other tech names such as Google (NASDAQ:GOOG), (NASDAQ:AMZN) and Microsoft (NASDAQ:MSFT) in October may be something to forget, the month is likely to be remembered as a turning point for products and future earnings releases. The iPad Mini white version sold out in a mere 20 minutes. Three days into pre-orders, all models of the new 7.9-inch tablet, in both black and white and in capacities ranging from 16 GB to 64 GB, were sold out and advertised to ship in two weeks. The little discussed iPad fourth generation also sold out, with shipping times pushed back to one week. In addition to the popular tablets, Apple introduced new entries into its MacBook, Mac Mini and iMac product lines in October.

Last week, the company reported earnings for its fiscal 2012 fourth quarter. Net income of $8.2 billion ($8.67 per share) disappointed analysts on Wall Street, but revenue surged 27 percent and came in higher than expected at $35.97 billion, a rare occurrence in the tech industry this earnings season. Looking forward, Apple expects first fiscal quarter of 2013 revenue to come in around $52 billion and diluted earnings per share of about $11.75, although Apple has a history of low-balling estimates and could easily report even higher financial results.

Is Apple’s stock a buy or sell at current levels? The fundamentals are still intact for the tech giant, but understanding market trends and price movements can be the difference between a good investment and a great one. 

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