7 Expert Takes on Apple Shares at $500
Opinions from seven investing professionals and Minyanville contributors on Apple's current dip.
By Peter Prudden
I wrote the majority of this piece in a note to clients back in late September. I believe it's still relevant.
Apple has effectively put Research In Motion out of business and RIMM dominated the wireless phone market 18 months ago. RIMM is nothing more than a portfolio of patents looking for a buyer. Motorola Mobility (NYSE:MSI), Nokia, and formerly Palm, all were dying products and unable to take on Apple as stand-alone entities. They were bought for design and/or patent portfolios in order for Hewlett Packard (NYSE:HPQ) and Google (NASDAQ:GOOG) to gain access to actual retail channels and get in the game. You have got to own the product and the stock must be a part of a personal or institutional portfolio. Fund managers are nervous. The retail and institutional crowd have pressured managers by boxing them in and making it a top holder on their sheets.
Steve Jobs' successor, Tim Cook, has opened the door to the institutional world. There is no turning back, and it will morph into an animal that isn't controllable. The closed oyster is no longer. The shark, a Wall Street analyst or prominent institutional shareholder, will always want a higher dividend, larger buyback, and a stock price to support it. It will be demanded. If there is an issue with product line, recall, or failure in production line, the shark will own you.
It has been eight years without a hiccup; serious adversity has never touched Apple. This has created a no-fear-just-buy-it moment in the market. The weighting of Apple in the Nasdaq (INDEXNASDAQ:NDX) has trapped it and it must be owned based upon benchmarks. This is a lightbulb moment, but no one notices what it is.
Apple's key analysts have taken the baton and raised the bar to a level where a bubble will be constructed; $1,000 price targets for Apple's stock have begun to surface in recent weeks, and frenzy will mount from here. It began with $400, then $700, and now $1,000 -- what's next? With a $1,000 target on Apple, the valuation would arrive at north of $1 trillion, which is double the current enterprise value.
With the stock trading at all-time highs, the Street had 23 'strong buy' and 23 'buy' recommendations and only one 'sell' recommendation. At the time of this writing, the median price target on 43 analysts polled was $725. Still, the stock appears to be cheap with a PEG ratio of 0.60, trailing 12 month P/E of 13.1 while producing year-over-year revenue growth of 94%. This has been accomplished by "the phenomenon." A sub-$500 marketplace comprised of the iPhone, iPod and iPad, of which I own two out of the three. The key to future valuation is growth, which is directly tied to its product cycle and introduction of the latest must-have offering. The next vision in the product line is an Apple flat-panel TV.
During the end of the bull market in 2007, Google (NASDAQ:GOOG) was the darling of the Nasdaq. It was the world's fair, overly loved and overly owned by the investment community. A clear separation from the fundamentals of the company and the stock has occurred and the tree must shake speculators.The stock has undergone a significant pullback, and I would advise paring down a short position and/or hedging a position. If the broader tape moves higher, be it on a fiscal cliff deal or year-end rally, AAPL should limp along higher. This may place a larger right shoulder in the chart. Vanilla investors should view $425-375 as a long-term buy point. The selling is hitting near-term exhaustion. Bears should be careful, and bulls need bravado to press the buy button.
Peter Prudden is the General Partner of SISU Advisors LP and the Managing Member of Prudden & Company LLC. Read more of his commentary, here.
Don't pull the trigger today.
By Michael Comeau
The correct answer to, "Why is Apple down so much?" is this: There are more sellers than buyers.
The stock is 'cheap' from a valuation perspective, and maybe we'll one day look back at this time frame as a huge buying opportunity, but that doesn't make it easy to pull the trigger today.
Apple is suffering a twofold problem. A lot of people already own the stock (it's not possible for a stock with a ~$500 billion market cap to be underowned), and the general public is no longer interested in the stock market, despite the S&P 500 more than doubling off the 2009 lows.
That means Apple needs marginal buyers when marginal buyers are hard to come by, and this problem is magnified by the fact that Apple is a momentum stock exhibiting serious downside momentum.
To get the stock moving again, Apple needs to generate some new excitement, either through upside earnings surprises, or through some sexy new products -- a TV may be key here. Otherwise, it is at risk of heading down the same path of multiple compression that's held back stocks like Intel (NASDAQ:INTC) and Microsoft (NASDAQ:MSFT) over the past decade.
For now, I'm still holding onto my very large position in Apple, but I'll readily admit that I'm wondering whether we've already seen the peak in investor sentiment toward the company.
Disclosure: Comeau has a position in AAPL
Michael Comeau edits Minyanville's Buzz & Banter, and is also a regular columnist on Minyanville.com, focusing on technology and consumer stocks. Read his recent articles, here.
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