An analyst addresses investors' top 10 concerns about Apple's 22% decline
FORTUNE — In a note to clients issued Monday, CLSA’s Avi Silver seeks to calm nervous Apple AAPL investors in the wake of the stock’s “bear market” 22.4% drop since it topped $705 in intraday trading on Sept. 21.
“We believe Apple’s fundamentals are intact,” he begins, suggesting — as sell-side analysts are wont to do — that the stock’s miserable performance over the past seven weeks creates a “buying opportunity.”
Specifically, Silver takes on what he says are investors’ top 10 concerns about Apple. His executive summary:
Gross margin outlook: We expect a reversal for the most part, but there are some structural issues weighing on LT gross margin and reflected in our model.
Management changes: We believe Apple has made the right moves, but changes
at that level may not signal confidence and retail head Browett was hired recently.
Trouble ramping new products: We believe Apple lost some revenue in October to Samsung but the situation is improving as evidenced by Verizon availability.
Misfiring on maps and other services: Apple’s ability to compete on web-based services longer term could be a key challenge as Apple has stumbled on several fronts — maps, iCloud (to some degree), iAd’s, and MobileMe. SVP of Software and Services Eddy Cue definitely has his work cut out for him.
iPad mini pricing: We believe Mini will be a blockbuster as it offers significant enhancements over competitive cheaper tablets at a very reasonable price.
Financial performance and outlook: Apple’s uncharacteristically missed consensus for two quarters. We expect this to change with current product cycles.
Slowing pace of innovation: iPhone launched in ’07, iPad in ’10 – 3 year category cycle suggests possible iTV in ‘13. Also look for potential iOS overhaul.
What’s next: iTV, major software upgrades, possibly mid-range iPhone.
Market research data on tablets and smartphones: Underscores Apple not addressing wide enough segment of the market but largely backwards looking in a trough product cycle quarter (C3Q12).
Tax selling: Why are other outperforming stocks not facing this kind of selling?
Silver is particularly enthusiastic about the iPad mini. “We believe the iPad mini will be a home run,” he writes. “As former users of the Nexus 7 and now proud owners of the iPad mini, we believe Apple’s brand, premium feel of the product, 35% larger screen (substantial), will drive consumers to pay up the extra $80-130 for this product.”
For technical traders, CLSA technical analyst Laurence Balanco offers an addendum: