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Buy Apple (AAPL) in my Jubak's Picks portfolio
05/18/2012 12:23 pm EST
The Wall Street Journal has reported that production for the new 4-inch screens for the iPhone could begin as early as June at LG Display, Sharp, and Japan Display. Combining Apple’s Retina display technology, now on the iPhone 4S, with a bigger screen will be Apple’s attempt to leapfrog the larger screens that have been available on some Android phones.
It’s no surprise that the introduction of a new iPhone model can slow sales of existing models. In the company’s fiscal fourth quarter in 2011—the company’s fiscal year ends in September—sales dropped as customers waited for the iPhone 4S. And in April Apple told investors to expect a decline in sales for the current fiscal third quarter.
Sellers, and much of the selling has come from hedge funds, seem to be thinking that they can take profits now and then get back into Apple on weakness when less sophisticated investors decide to sell on that predicted drop in iPhone sales. According to Bloomberg, hedge funds accounted for a third of Apple shares sold in the first quarter. Since hedge funds still held 38 million Apple shares as of March 31, it’s a good bet that they’ve been a major contributor to sales of Apple shares in April and May.
Might work. Although it seems an awfully complicated strategy based on a perhaps outdated notion that individual investors still move stocks. And on a projection that the macro-trends driving the current general market downturn will remain in place.
Me, I just like Apple’s fundamental value at the May 17 close of $530. There is downside risk—there’s downside risk everywhere you look in this market-predicted to be (AAPL)—but I think Apple’s decision to start paying a quarterly dividend of $2.65 in the quarter that begins on July 1 does mitigate a bit of that risk Not so much because the 2% yield is going to be so attractive, but because paying a dividend will expand the pool of institutional investors who can buy Apple. (A significant number of institutional investors are limited to buying stocks that pay dividends.)
I still think Apple faces significant technical barriers at $650 a share but with the recent sell off that level is now 22% above the $533 price at noon on May 18. I’m adding Apple to my Jubak’s Picks portfolio with a target price of $650 a share by December 2012.
Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund http://jubakfund.com/ , may or may not now own positions in any stock mentioned in this post. The fund did own shares of Apple as of the end of December. For a full list of the stocks in the fund as of the end of December see the fund’s portfolio at http://jubakfund.com/about-the-fund/holdings/
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