Jeff Kalnitz

Apple holds above $170 as the market generally takes a beating (as of Friday's closing bell); what's next , and whether to buy, sell or hold aapl stock? Is this "25 bagger" destined for the "100 bagger" promised land? Here's this investor's take...

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As of Friday's market close, Apple holds above $170 (within a few percentage points of it's latest all time high), as the market generally takes a beating; What's next , and whether to buy, sell or hold aapl stock? As Stephen Colbert devilishly asks; "President Bush- great president or Greatest President?" Answering that question about Apple (aapl) may soon fall more into the "historical facts of life" category than "partisan political opinion". In the meantime, here's this investor's take on the ongoing Apple story...

Multiple choice quiz (pick one): aapl a "25, 50,100, or 200 bagger"?
Anytime we have a current "25 bagger", and imminently potential "50 to 100 bagger", the stock invites and deserves extraordinary consideration and scrutiny. Such is the case with Apple (aapl). Since aapl has achieved a 25 times valuation increase in a relatively small amount of years, the question is how likely and quickly is aapl likely to double again? And how many more times can aapl achieve this? And is it too late (risk/ reward-wise) to get in on the gravy train? Less than three more doublings could make Apple the biggest company in history, by market cap! Will this happen by 2010? If so, this would inherently become a singularity, so tread carefully if entering aapl stock at current valuations.

Apple understands investor psychology;

Glimpsing that which is hidden just beneath the surface while understanding the masterful orchestration of the interplay between market expectations, current investing conditions, and investor psychology is a major key to unlock the brilliant play aapl stock (still) embodies. And possibly even more significantly at this late stage, instructive in helping us to identify the next stellar stock performer hidden like the near- perfect diamond amongst endless chunks of unqualified lumps of coal.

Look at the recent, ceaseless aapl- intimated rumors and news at any given time to understand just how brilliantly investors expectations and psychology are being played to produce some sweet, uplifting monetary melodies even at these lofty valuation levels. This last few weeks alone have seen the following drivers of upward momentum play out so brilliantly as to place aapl management in a class all their own. Even as market conditions froth over and investor confidence swoons, aapl increases the flow of meaningful information prior to their earnings report in such a way as to limit a major profit taking sell-off of the stock during a tough week for stocks. This may serve to make aapl a catalyst safe-haven for nervous investor monies over the next volatile several months.

Earnings and number of iPhones sold are not likely to dramatically surprise (although they probably will to some extent), therefore it becomes necessary for Apple to brilliantly illustrate the future trajectory of increased sales potential of the iPhone, Mac computers, and so on. Hence, a barrage of breaking news impeccably timed regarding a variety of timely issues. iPhone locked/ unlocked, special secure (safe) iPhone applications development by February, French law (in itself the predictable secret weapon antidote to the "apparent" poison pill/ ATT exclusivity clause in aapl's contract), the release of Leopard (an astonishingly useful upgrade), number of computers and iPhones sold and projected to be sold (in my opinion, still not fully factored in), DRM/ non DRM iTunes, lower iTunes pricing, the increasing likelihood that the video, TV and movie industries will eventually cave in to the Apple juggernaut, and on and on...

All the hot button issues cultivated as worrisome to the future health of aapl are addressed here, so conveniently orchestrated press release/ pageant style as to indicate that aapl is more than ever before way ahead of the rest of the pack at using these hot-buttons to hedge against prevailing investor perceptions and market variables, and propel the stock ever higher. The headlines might psychically question all this as follows; "Apple news blitz- inspiration or desperation?" This is indeed the sign of a great stock, a great management team, and a great continued money-making opportunity long term. The implications are in themselves so vast and far-reaching to the potential increased upside of aapl product sales over the next 12 to 24 months, it would require an entire article to cover these even minimally.

Suffice it to say for now that the company's 36 month strategy is so far advanced beyond the market's ability to currently fully comprehend and quantify the fiscal implications so as to provide yet another opportunity to beat the street handily by stocking up on aapl stock! (But it would be prudent to control one's urges to maintain a modicum of caution as usual when playing a hot stock, even aapl). Aapl compared to most of the rest of the tech stocks is like Crox compared to most of the other "shoe" stocks. If I find myself getting carried away with the giddy prospects relative to my hard earned investment dollars, I like to visualize walking a tightrope over Niagara Falls (some have actually accomplished this) while holding a tiger by the tail to reach a pot of gold at the end of a rainbow.That usually settles me down a bit.

Management is just so adept at making the right moves ahead of market comprehension, it would be hard to envision anything but a continued trajectory of similar wisdom (and their consequent returns) applied to strategies of company growth moving forward near term.

That is why using valuations, P/E, projected sales, or any other single factor alone could not have accurately predicted the stellar rise of aapl the stock, nor is it likely to moving forward. Investor sentiment acts as steroids, pumping the stock up with inflated unseemly muscle mass- that is until the company fails to impress, then look out below!

SHORT-TERM STRATEGY FOR TRADING AAPL STOCK;
As market cap shoots to the moon, we're definitely going out on a limb here more and more, which is why I am selling chunks of aapl off to capture profit and reduce risk after it's latest 55% run-up from a recent "low" of $117. But dream with me for a moment... Apple's stellar run began several years ago when the stock hung out at around $7-8 a share. Now around the recent high of approximately $175, we essentially have a "25 bagger". Any profits locked in now for those of us who started buying in near the $8 level will have achieved the rarest of return multiples. But consider that if aapl continues to successfully "play" the company, the investor base, and the stock as successfully for the next 3 to 5 years as they have so far done, if the stock doubles again we have a "50 bagger", and a second time makes a "100 bagger".

A "100 bagger" would turn $1 into $100 (or $10,000 into 1 million dollars), and yet look how difficult it is to actually identify, and maintain a core holding of a stock to get to this level of returns! Why is that? Because it almost never happens, and is very hard to count on, let alone predict.

Current Owners of aapl;
To those of you who have been following my blogs since aapl was many multiples cheaper, and have accumulated a significant position in the stock, I say this; $175 marks the beginning of a "sell" zone until (if?) the stock reaches $200. Take enough profits to make you feel good whether the stock stalls, falls, or continues its stellar ascent to the investing heavens. Then, sell additional chunks incrementally every 25 points or so, and smile repeatedly.

Potential buyers of aapl;
For those of you thinking about getting into aapl as believers in the company's ability to increase share price substantially over the next year or two, I say use caution. There are so many high reward, lower risk plays I wouldn't chase this one here. Looking at the historical price charts shows that every so often, aapl corrects in a definitive and impactful way. It may come by way of a substantial market correction (There is always the "hope"). Aapl may not hit the ball out of the park next week. Possibly, even probably profit taking post- announcement could occur. These could serve as potential entry points to ride a wave of "optimistic opportunism". Has the easy money been made here?

Well, I look at it this way; this next wave of tsunami- like growth would place aapl as one of the biggest market cap companies that ever existed, and by definition there just ain't that many of those! So be careful, because the #1 most fundamental strategic movement towards making money is not losing a lot of it. Because let's face it, we're not just talking about play money in an investing contest here- we want to be able to use our successes to enrich our portfolios in the real world markets.

To this end, a unified approach to playing this field best serves us in the "real world" of investing. What interests me to a far greater extent at this late point in aapl's game, is finding the next 10, 50 and 100 baggers. Any ideas?

Here are a few revealing aapl links to check out;

http://seekingalpha.com/article/50378-iphone-s-new-business-apps-just-what-the-market-needed?source=feed

http://www.apple.com/macosx/guidedtour/large.html

http://apple20.blogs.fortune.cnn.com/2007/10/21/apples-q3-preview-firing-on-all-cylinders/

http://seekingalpha.com/article/50315-apple-s-impressive-platform-security-for-iphone-leopard-development?source=feed

http://www.thestreet.com/s/apples-macs-gain-market-share/newsanalysis/techhardware/10385313.html?puc=_dm

http://apple20.blogs.fortune.cnn.com/2007/10/21/apples-q3-preview-firing-on-all-cylinders/

http://seekingalpha.com/article/50320-french-law-to-require-optional-unlocked-iphones?source=feed

Regards,
Jeff Kalnitz
jeff@jeffkalnitz.com