Apple still has some luster, manager says

Apple Inc.'s (APPL) disappointing earnings report last week is being called the company's worst negative surprise in eight years, but the market is showing enough mercy to suggest that this is only a temporary rough patch. The stock price, which had gained more than 48% from the start of the year, was down a bit since trading began Wednesday, while the broader equity market was essentially flat. The stock was jarred by Apple's report last Tuesday that the company had earned $9.32 a share on sales of $35 billion during the quarter ended June 30. Even though per-share earnings were up 20% from a year earlier, the results did not meet analysts' expectations of $37 billion in revenue and earnings of $10.65 a share. “This was a big one, because they haven't had this type of miss since 2004,” said David Rolfe, chief investment officer of Wedgewood Partners Inc., a $1.4 billion asset management firm. Apple has long represented the largest holding in the RiverPark/ Wedgewood Institutional Fund (RWGIX), a $315 million fund managed by Mr. Rolfe. “The fact that it didn't get slammed by 20% right off the bat speaks to the strength of the stock,” he said. Although some market watchers have interpreted the company's latest earnings as a stumble before the fall, Mr. Rolfe said that Apple remains a dominant player and innovator. “The next quarter will be light for iPhone sales because the next version won't be available until Christmastime, but the next quarter could still be big for the iPad,” Mr. Rolfe said. “But we do need to ratchet down expectations somewhat, because the iPad has lower gross margins than the iPhone.” Apple sales are also being hurt by the economic slowdown in Europe, Mr. Rolfe said. jbenjamin@investmentnews Twitter: @jeff_benjamin