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December 29, 2006

Apple Files 10-Q With Options Update

In hindsight, it appears that some of December's weakenss in Apple shares (down about 10% prior to today's open) was due to speculation about developments in the options back dating scandal. It is likely that prior to the publication of articles in Law.com and the Financial Times some investors may have gotten wind of the gist of the content. This is purely speculation on my part but it fits the profile of the stock trading in which the decline from $93 to $81 went far beyond concerns about the current quarter or the iPhone.

Apple is rebounding strongly today following the release of the company's restated 10Q and Annual Report. The 10-Q has a lengthy discussion of the options issues including a thorough recap of the internal investigation. My conclusion is that Apple is not out of the woods on this issue but investor concerns should decline dramatically.

Apple admitted that it screwed up and even the lawerly language used in the 10-Q does not cover up that fact. Two things are clear. First, Apple conducted a very thorough investigation. Second, Apple is going to defend Steve Job's actions. I still expect the SEC to pursue a formal investigation but I doubt that they will find anything more damning than what Apple has now admitted.

I expect investor attention towards Apple shares to largely refocus on fundamentals. That means a very strong December quarter earnings report and new product introductions at January's MacWorld. But the options issue will hang in the background until the SEC wraps up its investigation. And reporters will still dig around for incriminating info about Jobs related to the options issues.

Apple is way overanalyzed and investors have very strong emotions about the company. This means trading is likely to remain even more volatile that usual. But I expect the upward trend to resume and a move to over $100 is very plausible if my expectations about the December quarter, MacWorld, and the 2007 outlook are met.

Not surprisingly, I am staying strong across the entire Northlake client base and in my personal accounts.

Posted by Steve Birenberg at December 29, 2006 10:17 AM in AAPL