Mike Swanson's picture

Apple (NASDAQ: AAPL) and IBM (NYSE: IBM) Both Slip After Earnings Announcements - (10/19/10)

Shares of Apple (NASDAQ: AAPL) and IBM (NYSE: IBM) are pressuring stock market futures this morning after both companies announced earnings after the close of trading yesterday and saw their stocks slip in after-hours activity.

Apple was trading down six percent last night to mark its biggest single-day loss in two years.

The company beat on top of the line analyst consensus estimates, but announced disappointing Ipad sales and guided down for the next quarter.

Analysts had a consensus earnings estimate for $5.07 a share in profit for the holiday quarter, but Apple stated that it now expects earnings of $4.80 a share.

What really worries analyst is that gross margins fell way short of expectations for Ipad sales. They had a sales target of $5 million Ipads for the last quarter and Apple only sold 4.19 of them.

Apple CEO Steve Jobs responded to poor sales by attacking his rivals in a conference call blasting Google and Research in Motion and putting down smaller phone Internet gadgets.

“The current crop of 7-inch tables are going to be DOA, dead on arrival,” he boasted in the call, claiming that they are going to be too small for people to use.

He also argued that Google’s Android phone is a “fragmented” and confusing system and therefore will be unable to compete with his Iphone.

Traders have been chasing Apple straight up for the past few weeks and have been willing – almost excited – to pay higher and higher prices for it day by day. The stock ramped up Friday into yesterday’s earnings announcement and is poised to trap everyone who bought it in the past two days.

It is generally NOT a good idea to chase stocks right before they announce earnings, because they often drop after their earnings announcements as traders take profits. Apple looks like it is going to be a classic example of this.

It is better to buy stocks after they correct weeks before their earnings announcements than right before them.

IBM announced earnings that beat official consensus forecasts and even increased guidance for the next quarter, but none of this was good enough for investors who demand more in a stock market that has been going straight up for six weeks and is already pricing in most of the good news.

IBM is trading down 3.4% in pre-market action while S&P 500 futures are currently down 5 points.