Time To Short Apple? Hardly

H.L. Mencken famously wrote that no one ever went broke underestimating the intelligence of the American public. With kids lining up at Apple (AAPL) stores last week to buy the latest iPhone, isn’t that a timely cue to short Apple shares for around $700? To us, at least, it seems pretty stupid to pay Apple’s inflated prices when one can get a perfectly good, discounted Android phone from Samsung for less than half that price.

And speaking of Samsung (SSNLF.PK), we think Apple may have darkened its karma when they sued Samsung over a few trivial patents, extracting a billion dollar settlement (and never mind that, on appeal, Apple is seeking yet another $700 million from the same settlement). World-beating companies that pride themselves on innovation shouldn’t have to sue competitors for billions of dollars over design features that would have been self-evident to a freshman product engineer at Pratt or Carnegie Mellon.

So are we shorting Apple? Quite the contrary, actually. On Friday, even as we advised to cash out of a winning AAPL calendar spread initiated well below current prices, we were attempting to replace it with some Nov 730 -Oct 730 calendar spreads legged on for about $8. They’d yield great odds if Apple shares were to rise by another $30 over the next few weeks.

Apple looks like a shoe-in to go at least somewhat higher over the near term, having ended last week above $700 for the first time. And yes, we are well aware that the company has embarrassed itself by releasing a maps application with the new iPhone that really sucks compared to Google Maps (GOOG). But the kids who are lining up to buy the phone would probably still line up even if there were reports that the phone melts when exposed to sunlight. Like the latest Hermes handbag, the iPhone is a must-have – and not just for a few thousand women who can afford it, but for a cult of millions.

Ignore the Screw-Ups

There are other reasons not to short Apple no matter how badly they screw up. Most immediately, there is the deal with China Telecom (CHA) that will be worth perhaps $6 billion of instant new revenues. Ba-da-bing!

The stock should rise $100 on that deal before iPhone 4’s Bejing debut in March. There’s also the inevitability that Apple hardware will find its way into your television’s circuitry. Comcast (CMCSA) is resisting providing set-top access to Apple, since they are well aware of how much the music industry gave up when it put its fate in Steve Jobs’ coldly calculating hands. But in the end, how will Comcast be able to resist the kind of cash flow that a deal with Apple would bring?

And don’t forget that Apple bears will be bucking the stock’s 80% institutional ownership. These are guys who never sell, and so the “float” available to buyers will always be relatively limited even though Apple by capitalization is the largest company in the world.

Bottom line: We’ll short Apple only tactically, at Hidden Pivot rally targets with the goal of getting a step ahead of the occasional, take-no-prisoners downdrafts that the stock’s canny sponsors employ to shake loose bargains. Otherwise, warts and all, the stock will remain a no-brainer “buy” preumably until the trumpets sound from on high.