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Apple Stock Rises Before Earnings, but No One's Expecting Good Numbers

By , Contributing Writer, Money Morning •

Apple stock was up nearly 2% by noon today (Tuesday) - but this could be the end of gains for a while depending on what happens this afternoon.

Undeniably the most anticipated earnings report of the season is the Apple earnings report, due out after the close Tuesday. Expectations are for a downright dismal quarter.

Among the issues Apple Inc. (Nasdaq: AAPL) is expected to address include:

  • iPhones: Apple generated some $22.7 billion from the sale of 35 million iPhones in the same quarter a year ago. Investors will want to hear how much competition from other smartphone markers, like Samsung, has chipped away at those numbers.
  • iPads: Apple sold 11.8 million iPads that generated $6.6 billion in sales over the same period a year earlier. With the bevy of new and cheaper tablets now on the market, it is unlikely Apple has been able to maintain those robust sales.
  • Gross Margins: Gross margins peaked at an astounding 47.4% during this quarter last year. Apple's warning last October that margins could drop as low as 38% was the catalyst behind the stock's steep plunge. In January, Apple said profits should come in around 37.5% to 38.5%. These numbers are crucial.
  • Revenue and Profit: Last year, Apple earned $12.30 a share on revenue of $39.2 billion. Estimates are for $10.12 a share on revenue of $42.6 billion. Even the slightest miss could wallop shares.
  • Guidance: Most importantly will be what the company says about future quarters. Analysts expect Apple to guide lower, at least for the next couple of quarters.

Of particular interest will be what Apple plans to do with its hefty $157 billion cash stash. A special or increased dividend and a bigger share buyback could provide a temporary boost to the stock. But any gains are likely to be short lived.

"People have to be patient. The next quarter will be disastrous and the quarter after that stock will only go in one direction and that is down," Trip Chowdhry, co-founder of Global Equities Research told CNBC.

Apple Stock Price Drops in 2013

After a 10% drop this month alone, and down 27% year-to-date, scores of analysts have soured on Apple stock.

Shares hit a high of $705.07 last September. But negative sentiment followed after the realization that Apple's current market for its iPhones has reached a saturation point.

Whatever the company's next big thing may be, it simply can't be big enough given Apple's already gigantic growth and revenue. This has left many to question if Apple stock's best days are behind it.

The company's market cap has shrunk from $656.51 billion to $374.37 billion, a whopping 43% decline in seven months. Tech Crunch ran the numbers and found Apple's market decrease is greater than the market capitalization of Amazon.com Inc. (Nasdaq AMZN), Facebook Inc. (Nasdaq: FB), Yahoo! Inc (Nasdaq: YHOO), Hewlett Packard Co. (NYSE: HPQ), Research in Motion Ltd. (Nasdaq: BBRY) and Nokia Corp. (NYSE: NOK) combined!

Even the announcement of an Apple TV or Apple Watch will probably be met with lukewarm enthusiasm at best. Money Morning Chief Investment Strategist Keith Fitz-Gerald called both "non-starters."

Even trading at just nine times earnings, "I don't think Apple is undervalued at all," Fitz-Gerald said.

As for when and where Apple stock will find a bottom, Fitz-Gerald added, "When people stop selling shares."

For a full report on why not to buy Apple stock, check out this video interview with Keith Fitz-Gerald.

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