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Worst may finally be over for Apple

November 20, 2012: 1:07 PM ET

Apple shareholders have been mostly seeing red lately as the stock has tumbled sharply from its all-time high. But the sell-off may finally be done.

The opinions expressed in this commentary are solely those of Paul R. La Monica. Other than Time Warner, the parent of CNNMoney, and Abbott Laboratories, La Monica does not own positions in any individual stocks.

Apple (AAPL) shareholders finally have something to give thanks for as we get closer to Turkey Day.  The stock surged more than 7% on Monday.

So is the worst is finally over for Apple, following a rough two months? The maker of iEverything is still technically in bear market territory -- shares pulled back a bit Tuesday and are down 20.3% from the all-time high of $705.07 that they hit on September 21. But Apple has shot up 11% from the intra-day low of $505.75 that it just hit last Friday.

I continue to think that the sell-off, while painful to anyone who bought Apple with a stock price beginning with the number 6 or (gulp!) 7, was healthy and necessary. Keep in mind that Apple's shares are still up nearly 40%  year-to-date and have risen about 185% in the past three years. Any stock that goes up that quickly has to cool off from time to time.

Apple's fundamentals remain ridiculously strong. Analysts are forecasting sales growth of 24% for fiscal 2013. That's incredibly robust for any company, let alone a decades-old firm that it is expected to post annual sales of more than $190 billion next year.

Related: The bear case for Apple looks flimsy

The Apple sell-off is merely an exaggerated example of what's playing out in the broader market. Investors are nervous about the fiscal cliff, Europe's debt crisis and a potential slowdown in China. Apple would be hurt by a global economic slowdown, just like most other major blue chip companies.

As cliche as it sounds, Apple is now a victim of its own success. Many mutual funds and hedge funds own Apple, which means that institutional selling can quickly feed on itself as pros run for the exits. Making matters worse, Apple now pays a dividend that yields a healthy 2% -- so its shares are likely getting hit by fears that taxes on dividends will rise if a fiscal cliff deal is not struck before year's end.

"There is a big debate about what caused the drop, but it's a market proxy right now," said Mark Spellman, manager of the Value Line Income & Growth Fund in New York. "If you don't like the stock market right now, you sell Apple. Period. It doesn't matter if you like the new iPad."

Spellman said he recently bought the stock for his fund, since it became attractive around $525 a share.

Of course, there are risks to the Apple growth story. Investors and consumers clearly won't be satisfied solely by updates to current products. (Ooh! The phone is bigger! And the tablet is smaller!) The reason that Apple has been such a phenomenal success over the past decade is because it invented stuff we never knew we needed and made those gadgets must-haves. Will a long-rumored television overhaul be the next iPod, iPhone and iPad?

It's reasonable for investors to wonder whether Apple CEO Tim Cook has what it takes to wow consumers, Spellman said. Some argue that Cook hasn't really proven himself yet, since the iPhone and iPad were both products that were introduced under the watch of the late Steve Jobs.

But Apple's flaws seem to be more than priced in to the stock. Shares trade for just 11 times 2013 earnings estimates -- and that doesn't factor in the $121.25 billion in cash and securities Apple has on its balance sheet.

"If this was a stock trading at 30 times earnings, I'd be a lot more worried," Spellman said.

Related: Apple's iPad mini may be 'less cannibalistic' than expected

George Young, manager of the Villere Balanced Fund in New Orleans, agreed. He said he and his firm's partners debated for several weeks last year about whether or not they should buy the stock. They wound up doing so just before Jobs died.  Ultimately, Young said he was swayed by the fact that Apple is the rare stock that is growing like a momentum darling but trades at a price that isn't reminiscent of the late 1990s tech bubble.

"It's a cheap stock but it's also a faddish one," Young said, noting that he can't help but be impressed by a company that makes products that appeal to his 20-something daughter as well as his 70-something uncle.

And at the end of the day, which other tech companies look more appealing right now than Apple?

HP (HPQ), Dell (DELL), Intel (INTC) and Microsoft (MSFT) are all struggling mightily because of the sluggishness in the PC business.

Related: HP takes $8.8 billion writedown, reports huge loss

BlackBerry maker Research in Motion (RIMM) and Nokia (NOK) have both rebounded lately on hopes that new products will be big hits. But each stock remains well off its highs, and betting on a sustained turnaround is risky.

Amazon (AMZN)? The Kindle Fire may be doing well on the low-end of the tablet market. But the stock trades for more than 130 times 2013 earnings estimates!

That leaves Google (GOOG). While the House of Android is also a tech blue chip, a company with a dominant market position and solid growth prospects, Google's stock is more expensive (it trades at 14.5 times 2013 earnings estimates) and it doesn't pay a dividend.

Apple will peak eventually. All companies do. But it seems premature to say that it's best days are behind it.

"I'm not naive enough to suggest that any stock is a holding forever. Nothing goes just to the sky, and you are always going to have occasional sellf-offs with stocks like this," Young said. "But this has to be considered a core holding."

Note to readers:  Thanks for the Twitter comments that helped me pick Apple for today's column. I promise to do another one on Ford (F), which many readers also wanted me to focus on, sometime soon.

There will be no Buzz on Thursday since it's Thanksgiving. Hope everyone has a great holiday. Enjoy the food, family and football!

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Paul Lamonica
Paul R. La Monica
Assistant Managing Editor, CNNMoney

Paul R. La Monica is an assistant managing editor at CNNMoney. He is the author of the site's daily column, The Buzz, and also tweets throughout the day about the markets and economy @LaMonicaBuzz. La Monica also oversees the site's economic, markets and technology coverage.

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