Good morning,

The markets are called flat this morning. This is what's happening today:

  • Spain will be raising E3bln in the markets today. Spain will sell 12-month and 18-month bills a day after borrowing costs climbed to the highest level this year and the cost of insuring against the nation’s default reached a record;
  • Foreign direct investment in China dropped for a fifth month as the economy slowed
  • Moody's denies it will cut the AAA rating for France;
  • Germany’s ZEW Center for European Economic Research may report an index of investor and analyst expectations fell in April from 21-month high, according to economists surveyed by Bloomberg;
  • G20 meeting on Thursday;
  • Apple closed the session at $580.13 (4.15% down)

Today it's all about Spain and how much the country will have to pay for the cash it is raising. Markets are called flat as we wait for the results of the auction.

But today I want to talk about Apple because with the drop in price it got some investors worried about whether to stay in the stock or out of the stock. To start off with I'd like to put investors' minds at rest that there is no negative company specific news in the markets which justifies a selloff of the shares. The company has not done something which disappointed investors and hence the drop in price is not because of a negative event which took place at Apple. It is all about systematic risk and not unsystematic risk.

Apple closed the session at $580/share. At $580/share the stock is trading 41% higher than at the start of the year. That's an impressive performance from a stock. So for all those holding Apple they are still doing an exceptional gain since the start of the year. We have seen this share go up even in days when the markets were getting slaughters. Now a few days of weakness and everyone starts to panic. I don't think it is justified.

The markets have been selling off and just like any other stock, you would find people holding on to Apple sell the stock to cash in on a profit. For some people, earning 41% since the start of the year is an outstanding performance and when the markets turn sour, they cash in on the profits. But I still think it's not time to start panicking. It is not time to sell Apple. Hopefully one day Apple will become expensive and it would make sense to sell the stock but now is not the time. 2012 is going to be a great year for this company. Just wait and see. If you were one of those investors who sold out of Apple last year sometime in November when the stock price hit $360, the share price kept on rallying since then and hit a high of $636.23. And I'm pretty sure that alot of investors who threw away Apple at $360/share never bought them back because psychologically they saw the share as being expensive and they missed out of the rally. In hindsight don't do the same mistake again!

No share, not even the very best companies with great performance like Apple just go up in a straight line. You must be naive to even think such a thing. You will always have times of volatility just look around you. Markets have been falling because of worries that the cost of Spanish debt could reach an unsustainable level. Look at the performance of the banks and other sectors then look at Apple. Apple does not trade in a vacuum and although its a great feeling to see the share price go up even when the market gets hammer, it doesn't happen all the time.

I still believe that adding on the positions in Apple is the wisest thing you could do. Could it fall further? Of course it can but that would just make it more of a bargain. What I would do is buy Apple, stop watch CNBC and look at the share price after the company reports its results. Because I assure you, if you think you can outsmart the market by selling it and buying it later, you will get caught out. Hold on to Apple, don't sell. And if you don't hold Apple add to positions.

You don't buy a stock to make money in one day. That is not the concept of investing, that is a gamblers philosophy. When you invest you have to take a medium to long term view by extrapolating future earning, discounting them to the present value and see on what multiple the shares are trading. And if you do that for Apple, I am pretty sure you wouldn't want to be selling you stock.

JP Morgan's valuation on the stock – We reiterate our Overweight rating and increase our Dec 12 price target to $715, versus $625 previously. Apple is also on the J.P. Morgan Analyst Focus List and remains one of our top picks in our coverage universe. Our price target is derived from a weighted blend of EV/EBITDA and P/E scenarios utilizing historical peak/trough multiples. With Apple, we think it is time for the “value stock” valuation multiples to be re-rated higher. Our revenue and EPS growth estimates position Apple as the lone star in large cap tech. Currently, Apple trades at 12.8x our C2012 EPS estimate, versus the peer group average of 12.3x. In our view, Apple is still trading like a value stock and not as the high-growth story in large cap tech. We expect Apple to continue outperforming on both top- and bottom-line growth metrics relative to the peers as the company’s rapid growth phenomena of the iPhone and iPad intensify. Plus, do not forget about the Mac business, we think that the company’s incremental market penetration opportunities can help the Mac become a major contributor to overall company growth in the coming years.

Stock to watch: Apple (Price $580.15, Price Target $715)

For further information on Apple or other stocks we follow, contact our offices on 25688688.

Good day and happy trading!

Kristian Camenzuli