Opinion on  Apple Computer Inc (AAPL)     Sector: Technology  >  Industry: Computer Hardware
Apple Crushes Estimates, Stock Falls

The market is falling under selling pressure this morning, with the Nasdaq leading the way on the downside.



AAPL absolutely crushed estimates last night. Earnings and revenues were well above consensus, gross margins were higher, and the company sold a ton of iPods. The company offered conservative guidance, but everyone already knows management does this. So I am surprised by the drop in the stock. I would look to add to it on further weakness.



Semis are also down this morning (-2.8%) on the heels of a weak LRCX report. Retail stocks are bucking the weakness.

As I suspected, there wasn't a hint of terrorist activity over the July 4th holiday. So the bid that had been in the Treasury market is waning, and that is helping push bond yields higher. The 10-year is currently near 5.10%.


Oil is also trading higher, pushing above $72. On the plus side, earnings for the energy complex should be strong again. On the negative side, the combination of higher oil and higher bond yields will likely take some of the wind out of the sail of the stock market.

There was more M&A activity, with Blackstone (BX) making a $26 billion bid for Hilton Hotels (HLT). The stock is up +27%. HUN also got a higher bid ($6.3 billion) from Apollo. And KKR has decided to follow in Blackstone's footsteps and file for an IPO.

Asian markets were mostly higher, with S. Korea and Hong Kong reaching new all-time highs. But China went the other direction, in a big way, falling -5.25% overnight, on top of a -2.15% drop the day before. That's a big 2-day plunge, and I am surprised it didn't cause more of a spillover into other markets.

AAPL and GOOG are both surging to new highs this morning, while higher rates are weighing on the financial complex.

long AAPL, GOOG

People love to talk about the "halo" effect for Apple (AAPL). That is, as iPods and iPhones gain popularity, consumers become more aware of the brand and are more apt to buy Apple PCs also, which really helps boost the company's earnings.

Well, Cisco Systems (CSCO) has a large halo effect of its own. Its halo effect has to do with the large ecosystem of companies that benefit when the tech giant is clicking on all cylanders, as it seems to be doing now.

We know this because of the incredibly bullish comments that CEO John Chambers made during and after its conference call. He said that, "he believes this is the strongest global economy he has seen in his career." He also said that CSCO is in its 2nd phase of Internet growth and believes it could be as big as the first phase we saw in the '90s. Last, he raised the company's long-term revenue growth forecast from +10-15% to +12-17%. All in all, very bullish comments.

So all of those companies up and down the supply chain should be able to ride on the Kid's tailcoat. Case in point is Broadcom (BRCM), which is surging nearly +10% today on big volume.

long AAPL, BRCM

Retailers are not reporting very strong results currently, just ask Lowe's (LOW). The company lowered guidance materially, and said that too many uncertainties exist to call the bottom. Also, Target (TGT) lowered its September same-store sales forecast. The combination pushed the retail index down to a -3.0% decline in early trading.

Homebuilder Lennar (LEN) also posted dismal results, posting a net loss vs. the consensus for a gain. The company has cut its work force by 35% and anticipates futher job losses. The homebuilder index is down -2.1% currently.

Existing home sales fell -4.4%, and the Cash-Schiller index showed U.S. home prices declined again in July, posting their steepest drop in 16 years.

AAPL and MSFT are higher so far, and this is helping the Nasdaq 100 stay in positive territory.

This week brings quarter end, so if window dressing comes into play, it should mean any pullback is shallow and buying pressure should exert itself towards the latter part of the week.

long AAPL, QQQQ