(B)(N) AAPL Apple Incorporated

Apple Incorporated is in the news again because the company has advised us that its new products are more expensive to make and might reduce future near-term profit margins which are currently on the order of 40%. Some well-regarded analysts have (breathlessly) cut their future near-term stock price expectations from $700 to $650 or less (the stock closed at $604 on Friday) and one notes that about $100 billion of  “shareholder value” has evaporated since stock price highs in excess of $700 earlier this year.

To us, of course, all of this sounds like the weekend trailer reviews of a new box office wonder that is unlikely (in our opinion) to have the legs of a true classic. After all, the company (Press Release, October 25, 2012) sold 26.9 million iPhones®, 14 million iPads®, 4.9 million Macs® and 5.3 million iPods® in the last three months and 60% of its sales are outside the USA. In aggregate, that’s 60 million new devices in three months (say, 20 million a month) in a world that might have one billion (old or older) people who are capable, that is, have the money and motivation to buy and use them, and a world that is full of some pretty sharp competitors in phones, computers and entertainment using these already familiar technologies. What’s next?

Exhibit 1: (B)(N) AAPL Apple Incorporated – Price Chart

Apple Inc designs, manufactures, and markets personal computers, mobile communication devices, and portable digital music and video players and sells a variety of related software, services, peripherals, and networking solutions.

(Please Click on the Chart to make it larger if required.)

The Price Chart (please see Exhibit 1) shows that Apple Inc is trading at close to the Risk Price (SF) (the solid Black Line) and only occasionally does the Stock Price (SP) (solid Red Line, also a step-function) demonstrate a persistence or commitment of investors that would suggest that we buy and hold the stock, too. Moreover, that assessment is not just based on a “pretty picture” – please see our recent Post, The Nash Equilibirum & Its Stock Price, October 2012.

If we buy it, the current stop/loss is set to minus $85 (-$85) against the current stock price (please see our Post, Popoviciu’s Volatility, September 2012, to see how that is calculated on the demonstrated volatility) and since we don’t feel comfortable with losing that much on a $600 stock (unless, perhaps, we’ve owned it since $200-$400 a few years ago) the January put option at $600 is $3,440 now (per 100 shares) and the January call option at $650 is $1,680 so that for a net cost of $17.60 per share, we can lock in our price at between $600 and $650 for the next three months (please see our Post, The Wall Street Put, August 2012, for more information) while we make a few calls and listen to our music.

For more information on RiskWerk, please follow the Tags or Categories attached to this Letter or simply enter Search for additional references to any term that we have used.  Related data may be obtained from us (for free) in a machine readable format by request to RiskWerk@gmail.com.

Disclaimer

Investing in the bond and stock markets has become a highly regulated and litigious industry but despite that, there remains only one effective rule and that is caveat emptor or “buyer beware”.

Nothing that we say should be construed by any person as advice or a recommendation to buy, sell, hold or avoid the common stock or bonds of any public company at any time for any purpose. That is the law and we fully support and respect that law and regulation in every jurisdiction without exception and without qualification to the best of our knowledge and ability.

We can only tell you what we do and why we do it or have done it and we know nothing at all about the future or the future of stock prices of any company nor why they are what they are, now.

The author retains all copyrights to his works in this blog and on this website. The Perpetual Bond®™ is a registered trademark and patented technology of The RiskWerk Company and RiskWerk Limited (“Company”) . The Canada Pension Bond®™ and The Medina Bond®™ are registered trademarks or trademarks of the Company as are the words and phrases “Alpha-smart”, “100% Capital Safety”, “100% Liquidity”,  ”price of risk”, “risk price”, and the symbols “(B)”, “(N)” and N*.