What to do with Apple Stock Today

Just 4 months ago Apple ($AAPL) could do nothing wrong in the eyes of investors or analysts. Today that view of Apple is 180 degrees different. The amount of negative stories regarding the company greatly outweigh the positive remarks.

Does this signify the end of the remarkable run for the largest company in the country? Is it merely profit-taking and ganging up on the global leader? Or is this a complete overreaction by investors that have been burned too many times in the past? Finally, is this a long-term buying opportunity?

I wish I had the answer to one of the above questions. The only thing I can do is use my knowledge of the market and Apple stock to come up with a plan. For starters, we do own shares of Apple for several of our clients and as of today I plan on holding for the time being.

For investors that do now own Apple I would consider buying IF and only IF the stock can hold near the $500 level for a few days.

Fundamentally the stock is undervalued based on future projections. For fiscal year 2013 the stock is estimated to earn $48.69/share. Based on today's price that has Apple trading with a P/E ratio of 10.3, well below the market and its peers. When looking out to 2014 the estimate is for earnings of $57.10; based on 2014 numbers the stock is trading with a P/E ratio of 8.8. The PEG ratio, which is even more important is a very low 0.53, well below the 1.0 we consider an attractive value.

To put the situation into real numbers. If the stock were to trade at 13 times 2014 earnings (assuming they remain the same), it should be at $750/share or 50% higher than it is today. This is a realistic target for the stock based on fundamentals and offers a large upside versus limited downside considering the already low valuation.

From the technical view, the stock needs to hold near $500 or it could continue lower by another 10% before finding support.

So what to do?

I would hold if you own. And if you are looking to buy wait a few days to see if $500 holds, if it does go in with a 1/2 position and wait and see for the next move.