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Nicolas Chahine

I am from Main Street not from Wall street yet I have a 90% success rate on credit spreads. Prior to trading full time, I climbed the ranks of the corporate finance world. Then in 2000, I branched...

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What Do Apple and Facebook Haters Have to Say Now?

It takes a special kind of idiot…

Since September of 2012, shares of Apple (NASDAQ: AAPL) have been on a major slide from a top of $603 per share level all the way down to $380 in April of this year.

During the first half of 2013, there was no shortage of Apple stock haters. After Steve Jobs' death Wall Street declared the company stock dead. Traders and hedge funds sold it while they grabbed for frothy companies that in reality don’t measure up Apple’s proverbial toe. The haters spoke volumes with their asset allocation away from quality into froth.

However, since the lows, appetite for Apple's stock has been on the rise. Price is making a rounding bottom from which it can build a comeback of sorts.

Similarly to Apple, Facebook fell out of favor immediately after its initial public offering. The stock open price high was $45 per share before quickly tumbled to a low of $17. Of late, and just like Apple, Facebook has been working on a rounding bottom from which it mounted an impressive comeback to regain and impressively breach its IPO price.

This article is not meant to be a lesson in stock price history for two major corporations.

The point here is to highlight how market sentiment often prevents investors from seeing the obvious.

In Apple's case, there is no doubt of a few facts that guarantee Apple a rosy outlook for the foreseeable future. During the sell off, traders concentrated on ‘deteriorating margins’ and ‘lack of innovation’ and declared it a broken company. Incidentally, Apple’s 38 percent gross margin is the envy of most corporations.

Instead of moping over eroding margins and no innovation, traders should have paid attention to Apple’s core assets – pun intended. Peel away the Apple name and consider this ‘xyz’ company’s strengths:

  • It has a cult-like clientele
  • It instantly sells out of every new widget it makes
  • People camp out to buy the new widgets when they don’t really need to
  • It pays a giant dividend and buys back stock
  • It controls almost half the music sales on the planet
  • It has a humble price to earnings ratio of about 13 (Amazon 1278; Netflix 267; Google 29; GE 18)
  • Oh and by the way it has 140 billion Dollars in cash

A company with the aforementioned assets is as sure an investment as any. If traders are not comfortable risking money on such credentials then they should stash their money under the mattress.

… It takes a special kind of idiot to undo the money making machine that Steve Jobs built. Although consensus is that Apple's current CEO Tim Cook is not Jobs, he certainly is not an idiot. After all, he was hand picked by Jobs to take over his beloved company. Given time, Apple may just yet deliver that flying car that Wall Street is expecting.

Similarly to Apple, Facebook (NASDAQ: FB) suffered from markets blinders. Investors chose to concentrate on Facebook’s botched IPO process and rendered it a broken stock. Mistakenly they labeled a broken company. Had investors read a few pages of the Facebook story with an open mind, they would have seen many happier possible scenarios. Although the list of assets is not as impress Apple’s, Facebook has what no other company has: the attention of a billion users every day! And just for that it is very hard to make the case for a broken company.

… It takes a special kind of idiot to mess up the potential inherent in a billion users. Although it is debatable if Mark Zukerberg is a true genius or simply opportunistic, it is without a doubt that he is not an idiot of the special kind.

Both Apple and Facebook were mistakenly labeled broken companies when in reality, only their stocks were damaged. Left unchecked, trader emotions and sentiments can cloud the clearest of pictures. In this case many investors were caught selling when they should have been holding on or buying.

Good traders find obvious opportunties. But great investors uncover diamonds in the rough. Apple and Facebook are two gems that will shine for the foreseeable future.

For more of the author's trading ideas, follow him on Twitter and StockTwits (@racernic).

(Disclosure: Author does not hold positions in either AAPL or FB)

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