Stock Quotes in this Article: AAPL

BALTIMORE (Stockpickr) -- If you’ve been following shares of Apple (AAPL) for the last several months, you know the story. This stock has gotten absolutely shellacked lately.

In the last six months alone, AAPL has dropped more than 25%, no small move for a $430 billion company.

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Recently, TheStreet's Rocco Pendola wrote an article with the headline “All of a Sudden, Apple 'Sucks.'” Well, he got that half right anyway.

Apple doesn’t suck. Its stock does.

I realize that may sound like a ridiculous thing to say. But think about what it means for a second, and there’s something to it. In fact, it could fuel some serious gains in your portfolio -- if only you’re willing to give Mr. Market’s most conspicuous fallen angel a second look.

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What Doesn’t ‘Suck’ About Apple

To do that, we’ve got to take a look at what doesn’t suck with Apple.

In a word, it’s fundamentals.

Let’s be clear, though. When I’m talking about Apple’s fundamentals, I’m not talking about the stuff that the analysts are debating right now. I’m not looking at whether Apple still has “it” after Steve Jobs’ departure, whether the firm’s suppliers are quietly cutting production or whether the new not-so-super-secret Apple television will be a slam dunk for the firm.

I’m talking about simple, old-school valuation metrics. And the story is so clear it’s mind-boggling.

The most obvious thing is cash. Apple has lots of it -- around $137 billion in cash and investments at last count. Just for comparison, that’s more or less the GDP of Hungary. That’s so much cash that Tim Cook could decide to buy Research in Motion (BBRY) on a whim, burn the company to the ground and destroy less shareholder value than Monday’s decline did.

And he’d still have another $128 billion left in the company coffers.

It’s probably not surprising that Apple has no debt. None.

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There are a couple of caveats to Apple’s cash position. First, only around $43 billion of it is located here in the U.S. That means that the firm would have to hand over a big chunk to Uncle Sam if it wanted to repatriate the balance. Yes, I said “only.” Where the rubber hits the road for investors, the bottom line is that Apple can still use its foreign cash for actions that directly add value for anyone who owns the stock (think shareholder yield).

On that same cash front, Apple generated around $41.4 billion in free cash flows last year.

Here’s a big differentiator, though. There are a handful of other cash-rich companies (I wrote about some of them last month) that have been hoarding huge cash positions, but Apple has been one of the few truly good stewards of those shareholder dollars.

The biggest factor is that management has been able to push off the temptation of making big, stupid acquisitions. Sure, part of that is thanks to Apple’s corporate culture -- it’s much less apt to buy a new unit wholesale. But who cares why the firm is making good decisions as long as it keeps making them?

Right now, Apple’s cash position makes up around 32% of its total market capitalization. Pretty soon, the company is just going to be able to buy itself.

No Growth? No Way

Finding growth is a big problem for Apple -- or at least that’s the popular narrative right now.

But Apple has been hitting some big growth milestones lately. The firm sold 17.7 million phones in the fourth quarter of 2012, surpassing Samsung for the first time to become the biggest mobile phone maker in the U.S. The firm moved 38% more phones vs. the same quarter the year before.

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That’s not a stalling growth story, even if it is a slowing growth story.

And even though no one wanted to admit it, Apple’s first-quarter earnings didn’t “suck” either. The firm posted record numbers for its top and bottom line, after all.

At this point, the firm doesn’t need breakneck growth to justify its huge share price. It just needs to avoid imploding.
What Does Suck

But there’s a reason why Apple is down 25% in the last six months -- and why it’s trading almost $250 under its highs.

The problem isn’t Apple; it’s AAPL.

As much as some people hate to admit it, there’s a difference between a company and its stock. A company is made up of products, profits and customers. A stock all comes down to supply and demand for investors. Even though the two tend to correlate pretty strongly, those fundamental and technical factors can diverge.

As an investor, though, the only thing that determines your success is the stock.

And right now, Apple’s stock sucks.

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For starters, it’s expensive. With highs above $700, this stock’s price tag has a big psychological impact on the people buying and selling it. Never mind the fact that stock prices are completely meaningless 99% of the time – for many investors, a $700 stock (or a $460 stock, for that matter) can’t possibly be a “value” stock.

Another problem for AAPL is that everyone owns it.

Despite its fall, AAPL is still the biggest publicly traded firm in the world by market capitalization. Combined with the conspicuous rally the firm has enjoyed post-Great Recession, ownership rates in this stock have gone through the roof. At one point, more than 20% of mutual funds owned shares of AAPL -- and around 17% of individual retail investors did too. When one-in-five of your friends owns a stock, you’ve got good reason to start getting concerned.

Last Fall, after Apple hit the $700 mark, the early profit-takers spurred on the more anxious owners in a positive feedback loop that sent shares lower. That consistent excess of supply of shares in AAPL is what has caused the downtrend in this stock that’s been in force for months now. And until buyers remain more eager to jump back in than sellers are to escape a falling stock, that’s not going to change.

At the end of the day, it all comes down to this: Apple is a seriously cheap company right now, but it’s got a broken stock. Until the technical get fixed, it makes sense to stand clear.

In the last handful of trading sessions, Apple has managed to consolidate. At this point, though, it’s unclear if sellers are taking a breather before plunging the stock even lower, or if we’re seeing early signs of a bottom. In the short-term, I think a breakout above this recent range presents a decent buying opportunity for more-nimble traders; that happens on a move above $460.

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For longer-term investors, it doesn’t make sense to jump in until the downtrend in AAPL is broken. That’ll take a move above $500 at this point in time.

Buying Apple isn’t an easy move to make right now, and it won’t be an easy move when the stock turns over either. As former Putnam investment strategist Walter Deemer once said, “When the time comes to buy, you won’t want to.”

The common consensus on Wall Street is that Apple is broken -- that it sucks. But that's only half right. The stock sucks, but the company looks excellent right now. That’s going to create a big buying opportunity for buyers willing to separate the company from its stock in 2013.

-- Written by Jonas Elmerraji in Baltimore.


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At the time of publication, author had no positions in stocks mentioned.

Jonas Elmerraji, CMT, is a senior market analyst at Agora Financial in Baltimore and a contributor to

TheStreet. Before that, he managed a portfolio of stocks for an investment advisory returned 15% in 2008. He has been featured in Forbes , Investor's Business Daily, and on CNBC.com. Jonas holds a degree in financial economics from UMBC and the Chartered Market Technician designation.