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Of Apples and Gold

By Steven Orlowski on April 30, 2013

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The news is old already. It came to me while I was out of town. But it also came as no surprise.

Apple (NASDAQ: AAPL) finally listened to influential investors and took the big step of announcing both a stock buyback program and an increased dividend.

Of course, as I noted on Investing Daily in a March 18 article, those influential investors—notably Warren Buffet and David Einhorn—have been making noise about the need for these moves for a while.

Recent reports from Apple and its main rival Samsung Electronics (OTC: SSNLF) have further supported the need for at least one if not both moves.

In the first quarter of 2013, Samsung shipped 60.7 percent more smartphones than it did in the year ago period—a huge difference compared to Apple’s increase of only 6.7 percent.

Samsung accounted for 32.7 percent of the smartphone market in the first quarter, more than double the 17.3 percent for Apple.

But this isn’t really about Apple versus Samsung.

Some investment pundits are referring to Apple as “Microsoft 2.0″. The suggestion being, of course, that Apple’s heyday of accelerated growth and product innovation is in the past, akin to the situation with Microsoft (NASDAQ: MSFT).

Apple will remain a viable and profitable company. However, as with Microsoft a decade or so ago, Apple now needs to resort to measures such as dividends and stock buybacks to support the stock price and motivate an upward trajectory.

That sound you hear is me patting myself on the back. I wrote about the Microsoft/Apple comparison a long time ago. And trust me when I say that Apple fanatics didn’t take kindly to the idea.

As a matter of fact, some were downright belligerent. Some called me names; others wished me harm. But I was right.

So, what to do with Apple now?

Perhaps Apple is becoming a buy-and-hold stock for conservative investors. We could be witnessing the birth of a stock that provides slower growth, hopefully a more stabilized share price (as in not declining), a steady stream of revenue and moderate profits, and a bigger share of that mountain of cash.

Tim Cook, Apple’s CEO, suggested that there were more goodies to come through 2013 and 2014.

But of course he would, that’s his job. It’s like being the President of the United States, or any country or company for that matter. It’s not about being deceptive but about putting a positive spin on even the worst situations.

Apple is not dead. But it will not achieve its incredible performance of the past again.

But with these recent announcements I think it is a buy. The stock price has likely bottomed and should stabilize. But don’t go all in just yet. Build up a position slowly if you’re a newbie.

If you have a cost basis of $700.00, well, the time to sell has past. Hang in there but be prepared to wait a long time to break even.

As for gold, well, it’s also hanging in there.

The SPDR Gold Trust ETF (NYSE: GLD), has recouped about half of what was lost during that massive two-day sell off in mid-April. It got lower than I had expected it to; especially as rapidly as it did.

But it bounced right off a key support level around $130.00 per share. That support level was established between October 2010 and February 2011.

I still like gold, and I think it’s a more than reasonable buy right here. We all know the stories, pro and con. None of them have changed all that much.

GLD and all of its cousin exchange-traded funds (ETFs) on the long side have been liquidated at an accelerated pace. But it may have been overdone.

While speculation abounds about the discontinuation of the Federal Reserve activity that has helped drive up the price of GLD, we mustn’t lose sight of the fact that we are in an ever more globalized financial world.  

There is plenty of easing going on elsewhere. And although not priced in dollars, the efforts of other countries will still have a net positive effect on the price of gold and ETFs like GLD.

Could it go lower? Yes, and it probably will. But that will also most likely be temporary and the continuation of a big-time correction in a very long gold bull market.


What did you think of this article? Please post your comments below!

Steven Orlowski is a 20-year veteran of the investment business. He has worked for some of the most prestigious firms in the world in a variety of capacities, including portfolio manager, trader and high net worth financial planner.

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