How to Play Apple Stock After AAPL Q3 Earnings Chop Share Price 5%

Less than blockbuster Q3 earnings sent Apple stock down more than 8% in after-hours trading yesterday (Tuesday), lopping about $60 billion from the company's market cap.

AAPLApple Inc. (Nasdaq: AAPL) stock recovered a bit this morning (Wednesday) and was down about 5% in mid-morning trading. For those panicking over the big market cap loss, note that Apple regained about $23 billion of that within five minutes of the opening bell this morning.

But a closer look at the AAPL Q3 earnings shows the sharply negative reaction wasn't justified. If anything, it shows that Apple has spoiled investors with spectacular earnings beats.

The biggest sticking point was iPhone sales of 47.5 million that missed the forecast for 48.8 million (worse still, the whisper number was 50 million). And some estimates were up in the 52 million to 53 million range.

Investors also weren't too pleased with Apple's guidance, which was lower than they expected. But Apple is famous for lowballing guidance. And the close beat on the Q3 numbers probably made the company particularly cautious regarding Q4 guidance.

So the AAPL stock sell-off is basically investors throwing a tantrum because they only got two scoops of ice cream instead of three.

And now, we have a great Apple stock buying opportunity...

Why the Fall in Apple Stock Is Overdone

Apple's slight beats on revenue ($49.6 billion vs. a forecast for $49.4 billion) and earnings per share ($1.85 vs. $1.81) also need to be put into context. Revenue was up 33% from the same period a year ago, and EPS was up 45%. Even taking share buybacks into account, profits were up 38% year over year.

Considering the size of Apple, that's an astonishing achievement, but Wall Street dismissed it.

Also ignored was the China success story. Revenue there grew 112%, with iPhone unit sales rising 87%. Mac sales grew 33%, and App Store revenue doubled.

The rest of the Apple Q3 earnings were mixed. Sales of the long-struggling iPad were down 18% year over year.

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Sales of the Mac were up 9% to 4.8 million despite a 9.5% drop in global PC sales. And yet even that achievement missed analyst expectations for sales of 4.9 million Macs.

The actual success of the Apple Watch remains a mystery. But it may not be as bad as many suspect.

Stories that sales plunged were rampant in the weeks leading up to the Apple Q3 earnings, but the company isn't breaking those numbers out. CEO Tim Cook did say that the Watch had "exceeded internal expectations."

Meanwhile, AAPL's cash pile grew to $203 billion, even as the company returned $13 billion to shareholders.

So the best way to look at Apple stock is to take a broad view of the AAPL Q3 earnings. The Apple growth story hasn't really changed. Apple stock is still headed to a $1 trillion valuation on its way to $200 a share.

And today it's 5% cheaper than it was yesterday. That, my friends, is a buying opportunity.

Follow me on Twitter @DavidGZeiler.

AAPL Stock Going to $1 Trillion: Despite today's setback, Apple stock is still on track to reach a $1 trillion valuation. The only question is when. Here's why this milestone is all but inevitable...

About the Author

David Zeiler, Associate Editor for Money Morning at Money Map Press, has been a journalist for more than 35 years, including 18 spent at The Baltimore Sun. He has worked as a writer, editor, and page designer at different times in his career. He's interviewed a number of well-known personalities - ranging from punk rock icon Joey Ramone to Apple Inc. co-founder Steve Wozniak.

Over the course of his journalistic career, Dave has covered many diverse subjects. Since arriving at Money Morning in 2011, he has focused primarily on technology. He's an expert on both Apple and cryptocurrencies. He started writing about Apple for The Sun in the mid-1990s, and had an Apple blog on The Sun's web site from 2007-2009. Dave's been writing about Bitcoin since 2011 - long before most people had even heard of it. He even mined it for a short time.

Dave has a BA in English and Mass Communications from Loyola University Maryland.

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