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Make Money on Apple Analysts' Indecision

NEW YORK (TheStreet) -- There's no denying that shares of Apple (AAPL - Get Report) have been in a funk recently. Sounds like time to take advantage.

The stock ended Wednesday's session at $519.01, down more than 4% since the beginning of April. Before this decline, shares had climbed 5% since the end of February.

Apple will report fiscal second-quarter earnings results on April 23. The stock's recent volatility underscores how torn analysts are on what Apple is likely to report.

On the one hand, you have bulls like Andy Hargreaves of Pacific Crest, who believes Apple will beat earnings. Wednesday, Hargreaves reiterated his outperform rating on the stock and his $635 price target. From current levels, this suggest an upside of 22%.

Then there is Toni Sacconaghi of Bernstein Research, who believes there's more downside risk to these shares, even though the stock is off more than 26% from its all-time high of $705. And aside from warning about possible weakness in next week's report, Sacconaghi believes Apple will also disappoint investors in the July quarter.

Regardless of which analyst you want to believe, what remains clear is that Apple's worst days are over. And this stock is a definite buy ahead of the next week's earnings results. I say this knowing full well that Apple stock has had a tendency to fall following recent results. But my suspicions tell me this time will be different.

Consider this. For as much criticism Apple has received for its perceived poor results, the company has matched or beaten its own guidance for the past three quarters. In fact, during that span, Apple has surpassed its midpoint range for both earnings-per-share and revenue.

While detractors blame CEO Tim Cook for "missing" the mark and lament his purported inability to lead, it has been analysts (not Apple) that have missed on expectations. There is a significant difference.

Next week, the Street will be looking for $10.15 in earnings per share on revenue of $43.55 billion. Bears are already complaining the implications. Although $43.55 billion would be a 24% sequential decline from the $57.6 billion Apple posted in the January quarter, one shouldn't discount the effect of the strong holiday season that boosted last quarter's sales.

Likewise, analysts will harp on the device sales. Given concerns about growing competition from Samsung (SSNLF) and Google (GOOG), the Street will want some confirmation that Apple is able to maintain both its market share and strong margins.

To that end, 40 million is the key figure in terms of iPhone unit sales, down from the 51 million Apple sold in the January quarter, but 3% higher than Sacconaghi's estimates of 38.8 million. But assuming that Apple does not top the magical 40 million mark, analysts will do an injustice to investors if they fail to highlight the impact of Apple's strong margins.

Samsung spent $14 billion on advertising in 2013, or $13 billion more than Apple spent. Samsung's profits have been on the decline. Yet analysts drool over Samsung's market-share position. But is that really the point of investing? Market share absent strong profits don't support dividends and stock buybacks.

Assuming that Apple can maintain its profit margin of 37%, Tim Cook is certain to reward shareholders with more aggressive dividends and/or buyback announcement during the conference call. Margins that expand to 38% would be enough to trump any concerns analysts might bring up about the July quarter.

Considering their tendency to out-think themselves, it looks like time for investors to be decisive.

At the time of publication, the author was long AAPL and held no position in any of the stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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