Apple Stock to Rise 52%, Morningstar Forecasts

Chicago-based Morningstar covers more than 1,700 stocks, of which only 45 receive five-star rankings. That number has increased quite a bit in the past few weeks as the equity market has slid. Morningstar says Apple -- which is down to $315 from a 52-week high of $365 -- is now at a discount price.

During the second quarter, Apple roughly doubled its operating income and boosted sales 83%. Such growth is remarkable, especially considering that the company already has a market value of $290 billion. iPhone revenue surged 126%, Mac revenue climbed 32%, iTunes revenue increased 23%, software sales stretched 17% and peripherals sales advanced 23%. iPod sales declined 14%. The iPad, Apple's latest disruptive-technology product, has no year-over-year comparison, but it delivered $2.3 billion of quarterly sales. Put simply, business is booming.

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Commentators spouting off about the beleaguered American consumer as a should take a gander at Apple. Its recent move to sell the iPhone through Verizon (VZ) is providing a nice tailwind as its release of the iPad 2, which is cannibalizing PC sales from the likes of Hewlett-Packard (HPQ). The one unit receiving little attention, despite outstanding growth, is the Mac business, which is stealing market share at a steady clip. Two other positives: Apple's stock is extremely cheap, on a peer and historical basis, and it carries nearly $66 billion of net cash (cash minus debt). Morningstar's thesis is straightforward: Apple is a safe, cheap growth stock, likely to outperform.

Apple has a fair-value target of $475, suggesting a return of 52%. Unlike the sell-side, Morningstar doesn't link its targets to a specific time frame. Piper Jaffray forecasts a 12-month advance to $554 and Credit Suisse predicts a rise to $500. Apple receives positive reviews, comprising "buy," "outperform" and "overweight" rankings, from a disproportionate 91% of researchers in coverage. That share renders the stock the fourth-highest-rated in the benchmark S&P 500 Index. With an operating margin, at 29%, in the 99th industry percentile, it's no wonder why Apple is analysts' favorite tech stock. A trailing P/E of 15 is 39% below the five-year average.