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Is Apple all tapped out?

Shares of Apple (AAPL) were up and down Monday after steep declines last week. The down about 28 percent since hitting its all time high back in September.

There are several reasons why Apple has fallen out of grace on Wall Street recently. Some of Monday's move can likely be attributed to a downgrade over the weekend by analysts at Citigroup, which lowered its rating on the stock to “Neutral” from “Buy”.

One of the biggest concerns about Apple of late has been demand for its newest iPhone, the iPhone 5. Sales figures have been impressive, but not as good as a lot of analysts had forecast.

We are seeing conflicting information about the iPhone 5, which has led to debate about how successful the phone has been. On one hand, we are seeing reports that Apple has cut orders for the iPhone 5, leading to widespread speculation that the phone is not selling as well as Apple had expected. On the other hand, Apple has reported that it broke records in September when the iPhone was first released and then again last weekend when it was launched in China and sold more than 2 million units in the first three days the phone was on sale.

So what should we believe? Are iPhone sales weaker than expected, or are there other issues behind the company's reported cutback in orders? There are a couple reasons why Apple could be cutting back on orders, neither of which indicate weaker than expected sales.

The first is that Apple could be gearing up for another new iPhone launch. Historically, Apple has introduced new products once a year, but recently they have been doing so two times a year. We could be seeing Apple lowering its inventory of iPhone 5s in preparation for a new iPhone that could launch as early as this summer.

Another reason that has been proposed is that Apple misjudged how hard it would be to make the iPhone 5. If this was indeed the case, it makes sense that Apple would have placed bigger manufacturing orders than it needed, and now that it turns out the iPhone 5 is not as hard to make as once thought it has the ability to cut back on future orders.

So what should investors think about Apple right now? Personally, I believe we are going to see continued weakness in the near short term, but long term I believe the stock is still a solid buy. The company is expected to grow its earnings by 20% next year, making it a great value at today’s price.

Apple stock has become a victim of its own success, and we are seeing a lot of profit taking at the current time. Once this current panic subsides, people will start to once again look at the underlying fundamentals of the company, all of which are still positive, and we will see buyers come back to the stock.

Expect more selling, but don’t be too surprised if the stock is over $650 by the middle of the summer.

Disclaimer: The author of this post has a long position in Apple.

 

Michael Fowlkes is a financial writer who has been with the Fresh Brewed Media family since 2004. Over the course of his tenure with Fresh Brewed Media, he has worn many hats, including portfolio manager, options analyst, and writer. Michael received his undergraduate degree from Virginia Tech in Accounting and got his start in finance working as a stock trader for six years at Chase Investment Counsel in Charlottesville, Va. His articles typically cover big-picture events and forecasting what impact they will have on the stock market. In addition to writing for Fresh Brewed Media, Michael also wrote for AOL's BloggingStocks for three years, focusing most of his attention on the energy and technology sectors.

Michael Fowlkes

Michael Fowlkes is a financial writer who has been with the Fresh Brewed Media family since 2004. Over the course of his tenure with Fresh Brewed Media, he has worn many hats, including portfolio manager, options analyst, and writer. Michael received his undergraduate degree from Virginia Tech in Accounting and got his start in finance working as a stock trader for six years at Chase Investment Counsel in Charlottesville, Va.