Apple Investors: Don't Fall for This Thinking

The and the broader are downjust0.16% and 0.08%, respectively, at 1 p.m. EDT. The Nasdaq Composite was down0.12%. It's not helping sentiment that shares of Apple, the most valuable U.S. company, are now looking at the possibility of five consecutive losing days and 10 down days in 11 sessions, but here's why Apple investors ought to ignore this outright.

Apple store in China.

Apple: Take the long viewShares of Apple fell 2.4% yesterday, following the publication of estimates from technology market research companyCanalyst, according to which the Cupertino, Calf., giant lost its position as smartphone market share leader in China in the second quarter. In fact, Apple placed third behind local competitors Xiaomi (15.9% of smartphone shipments) and Huawei (15.7%), but remains ahead of its main global rival, Samsung.

If the share price decline is indeed a reaction to this report (and it's always tricky to tease these things out), I believe it is driven by traders or investors making a myopic analysis of these figures. Sales and market share numbers will necessarily fluctuate from quarter to quarter, and one data point does not constitute a trend.

Furthermore, there is every reason to believe the long-term outlook for Apple in China remains excellent. For an antidote to the grievous error that is investing myopia, it's worth going back to the comments Apple CEO Tim Cook made during the most recent earnings conference call only two weeks ago, in response to an analyst's question from UBS analyst Steve Milunovich regarding concerns related to China's economy and stock market [my emphasis]:

Note here the same contrast between what could happen in the short term ("speed bumps in the near term"), with Apple's longer-term outlook that is driving its strategy in China. The point at which China overtakes the U.S. is looming larger: In the last quarter, revenues from Greater China more than doubled yea over year, compared to just 15% growth for the Americas.

Mr. Cook went on [my emphasis]:

He's inaccurate when he refers to McKinsey's projections, according to which the Chinese upper middle class will represent 54% of urban households in 2022(at the end of 2014, urbanites represented 54.8% of the population). More importantly, however, his comment reveals the sort of time horizon he is considering in making investment decisions and setting strategy in China (and everywhere else, presumably), and shareholders ought to be delighted with this long-term approach for growth and value creation. Investors would be wise to adopt a similar timeframe -- out to 2022 and beyond -- if they own Apple or are deciding on whether to become shareholders.

Shares of Apple were down another 2.90% at 1 p.m. EDT. Part of the decline is almost certainly due to technical reason. It's been widely observed that yesterday's closing price represents a 10% correction regarding the stock's 52-week high and the first time it has closed below its 200-day moving average for the first time since Sept. 2013.

Those are even worse reasons for anyone who calls themselves an investor to sell the stock, as they have nothing whatsoever to do with the strength of the underlying business. I believe it's quite likely that three to five years from now (and perhaps sooner), it will be clear that todays' prices represent an attractive entry point.

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Alex Dumortier, CFA, has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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