Syria, Apple and Why I’m Waiting for Kerry’s Autobiography

Today was clean-up day. The Syria situation lost some urgency after last night’s presidential address, but the deal is already starting to unravel. Apple (AAPL) shares dropped after Wall Street analysts stepped all over each other to downgrade the stock.

In other words, yesterday’s big stories are also today’s. Déjà vu.

Bloomberg summed up the day in one single headline an hour before today’s close: "U.S. Stocks Fluctuate as Apple Plunges Amid Possible Syria Deal."

This afternoon, I’ll share some color for you on both topics.

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We don’t yet know whether the latest Syria twist was a lucky break for Obama, an ice-cold Putin plan, or both.

We do know those two had a private 20-minute meeting at the G-20 summit last week. Allowing for translation on both sides, it was really more like a 5-10 minute chat. If they hatched a secret plot, they must have talked fast.

The next day, reporters asked John Kerry if the Syrians could do anything at all to stop the U.S. from attacking. He answered with this:

"Sure, he could turn over every single bit of his chemical weapons to the international community in the next week — turn it over, all of it without delay and allow the full and total accounting (of it) but he isn’t about to do it and it can’t be done."

One theory is that Kerry either planted the question or knew it was coming. He then delivered an Oscar-worthy, no-hope-left piece of bait that Russia/Syria could not resist grabbing.

Another theory is that Kerry was clueless, Obama was truly planning to attack Syria soon, and Putin cleverly called the United States’ bluff.

Maybe we’ll learn the truth in someone’s autobiography. Until then, we can only wonder.

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The plan for Syria to simply "surrender" its chemical weapons turns out not to be so simple. Experts think the arsenal (which Syria officially still denies having) includes more than 1,000 tons of hazardous material.

If this is true, then transporting all the chemicals out of Syria and safely disposing of them will take some time. This is far more complicated than loading up a few trucks and sending them across the border.

Theoretically, the chemicals could remain in Syria under some sort of international custody. Who would it be, and who would guard the guardians? Remember, we’re not going to put American "boots on the ground." (Would it count if they were instead wearing sandals?)

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Wall Street analysts don’t wear sandals to work, which may be why they don’t understand a company like Apple (AAPL). They would much rather crunch numbers.

On that basis, today’s flurry of AAPL downgrades makes more sense. Wall Street thinks "market share" is everything. Looking at iPhone prices and sales projections after Tuesday’s big event, they conclude Apple is charging too much and will keep losing ground to Android-powered devices.

They may be right. A few investors apparently think so. Apple shares traded as low as $464.81 today before closing at $467.71. That’s 9% below the Aug. 19 intraday high.

I wonder what Carl Icahn thinks. He has a billion dollars at stake in Apple. If he decides to get out, he won’t tell anyone until his last order fills.

How do you feel about owning AAPL right now?

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I don’t have a billion dollars at stake in Apple (or anything else). With that caveat, I think Wall Street jumped the gun on this stock. Here are my reasons.

First, the global smartphone market is huge. Apple can make plenty of money even if Android has more market share. Everything I said two months ago (see Apple Takes a Bite) is still true today.

Second, much of the disappointment comes from Apple’s failure to confirm a distribution deal with China Mobile (CHL). This does not mean no deal is in the works. Chinese business leaders have a legendary degree of patience. They will make a deal when the time is right.

Third, Apple has its own long-term strategy. They want to be the premium device, not the cheap device. The iPhone 5C/5S combination gives the company a way to grow while also preserving the upscale image.

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We’re not as cool as Apple, but we are planning some new products for Uncommon Wisdom Daily readers. One of them will give you a way to sniff out undervalued stocks — especially those with big-bounce potential.

AAPL is high on the list. Specifically, our stock-sniffer says Apple’s fair value is $568. This is 21% above today’s closing price.

If the people selling today are wrong, then you have an opportunity to buy premium AAPL shares at a bargain, Android-like price.

I recommended AAPL a few weeks ago at $495.74. I liked it at that price and I like it even better now. I still suggest a 25% trailing stop from its Aug. 19 intraday high (which means $385.31 right now). I think AAPL will go back above $500 before it breaks below $400.

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Speaking of big-name stocks, we have some reader questions about the new Dow stocks.

Reader Cynthia C. says: "Brad, you didn’t say why Alcoa, Bank of America and Hewlett-Packard were kicked out of the Dow. What’s the usual reason, poor earnings?"

Brad: Thanks for the question, Cynthia. The Dow stocks are picked by a committee at S&P Dow Jones Indices. They aren’t bound by earnings or any other fixed indicators.

The goal, according to the DJIA official webpage, is " … to provide a clear, straightforward view of the stock market and, by extension, the U.S. economy."

Unfortunately, the U.S. economy is neither clear nor straightforward. I doubt anyone can summarize its performance in one number. The Dow people try their best.

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Twelve years ago, Wall Street was in shock. Today was a chance to remember before we look forward again.

A week from now we’ll be talking about the Federal Reserve announcement. Here is today’s wrap-up…

  • The S&P 500 scored a seventh-straight gain today, rising 0.3%. The cap-weighted index would have done even better without Apple, of course.
  • Apple has an even heavier weighting in the Nasdaq Composite, so that index was down a slight -0.1% today.
  • Syria looked peaceful again, but not peaceful enough to hurt gold or crude oil prices. Both managed to hold their ground and even bounce a little.
  • Bond traders are still cautious ahead of possible Fed action next week. The 10-year Treasury yield ended at 2.92% today.

Good luck and happy investing,

Brad Hoppmann

Publisher

Uncommon Wisdom Daily

Brad Hoppmann originally grew up in Florida, but has lived in Baltimore, Charlotte and New York as well throughout his career. Always an athlete, he played varsity football and water polo at the University of Florida and received All-SEC/SCC honors.