Can Apple Hit $1,650 in 3 Years?

Even on a down day like yesterday, Apple (Nasdaq: AAPL  ) continues to inch toward fresh all-time highs.

There's clearly no lack of love for what has become the country's most valuable company. Are we getting too euphoric?

CNBC had Eric Jackson -- hedge fund manager of Ironfire Capital -- on yesterday. As a Forbes contributor, Jackson wrote a column last week suggesting that Apple could be worth $1,650 by the end of 2015.

It's a big number, and the target date is far enough away to make people forget about it if he's wrong.

Spoiler alert: He won't be wrong.

Mac attack
A good chunk of Jackson's thesis is that Macs will grow in a major way. I'm not entirely sold on that, but let's take that out for a spin.

Apple sold 4.9 million Macs during the holiday quarter. It's a big number, but it basically amounts to just 5% of the nearly 92.2 million PCs that sales tracker Gartner estimates were sold during the period. Apple may have 11.6% of the domestic market -- growing at a time when its Windows-fueled rivals have largely stalled -- but it's still a bit player overseas.

Let's clear up what we mean by Mac sales. We're not talking about clunky desktops, though that's part of the Mac story. It's just that Apple is selling three times as many portable MacBooks as it is Mac desktops.

Jackson feels that Apple could sell 55 million Macs (desktops and portables) in 2015, more than tripling the 17 million it sold last year.

That's overly optimistic. The "good enough" computing revolution is real. It will be iPads and iPhones that drive Apple higher in the coming years. There's a good chance that students may warm up to Macs as iPads take over the classrooms with digital textbooks, but the real growth story here is the iOS platform that powers iPhones, iPads, and iPod touch devices.

Macs will continue to grow faster than the rest of the PC market, but expecting global sales to more than triple in three years is a stretch.

Take 500 million tablets and call me in the morning
Another part of Jackson's theory is that there will be 500 million tablets sold in 2015 -- and that Apple will sell 300 million of them.

Yes, Apple has better than 60% market share in tablets now, but I don't know how well it will fare in a future where Google's (Nasdaq: GOOG  ) Android will probably be the platform of choice for smartphones and tablets. That's OK. Apple will continue to be the one making the lion's share of the profits.

And, hey, 500 million is a huge number. That's more than the number of PCs sold worldwide last year. And the 300 million Apple figure means that 1 in every 20 people will buy an iPad that year. It's a metric that may prove true in the U.S. and select Apple-friendly markets, but a global average? I don't know about that. The wildcard here is if classrooms flock to the iPad without a viable Android-based alternative. Let's also not dismiss Microsoft (Nasdaq: MSFT  ) entirely here. It's been a nonfactor in tablets, but that may change as Mr. Softy's operating systems for both mobile and PCs grow more tablet-centric.

Bring out the bull suit
Disagreeing with Jackson on the market's demand for Macs and iPads doesn't sound like a good way to arrive at the same $1,650 figure, but let's be honest: Apple's biggest drivers three and a half years from now may not even exist yet.

The iPad wasn't around on this date two years ago. Go back exactly five years and we were still months away from the first iPhone. However, both of those product lines now make up more than half of Apple's revenue.

Does this mean that Apple is going to have to pull another rabbit out of its hat to grow into a $1.5 trillion valuation by the end of 2015? No. However, I think the inevitable iTV -- and perhaps more importantly the Web-served television service that will eventually follow -- will move the needle. An Apple TV won't be as replaceable as the iPad and iPhone. I don't see anyone swapping out their TVs every two years. However, Apple's ability to disrupt nearly any industry it enters has to tickle your sense of whimsy.

Right now, Wall Street sees Apple earning $77.09 a share in fiscal 2015. A price tag of $1,650 would give it a fair earnings multiple of 21 -- and likely a forward profit multiple in the high teens. When you consider that Apple's history with analysts consists of Wall Street perpetually jacking up their profit income targets, fiscal 2015's reality will likely be even better than that.

Yes, Apple has had a monster tear over the past few months. Jackson even conceded on CNBC yesterday that he wouldn't be surprised if Apple saw $500 before it saw $700.

On that point, I disagree. Apple will correct. It has in the past. It will in the future. However, given Apple's ever-improving fundamentals, the floor is as much a moving target as the ceiling.

Bet against Apple at your own peril. 

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The Motley Fool owns shares of Google, Apple, and Microsoft. Motley Fool newsletter services have recommended buying shares of Microsoft, Apple, and Google. Motley Fool newsletter services have recommended creating a bull call spread position in Microsoft. Motley Fool newsletter services have recommended creating a bull call spread position in Apple. The Motley Fool has a disclosure policy.

We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

Longtime Fool contributor Rick Munarriz calls them as he sees them. He does not own shares in any of the stocks in this story. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.


Read/Post Comments (10) | Recommend This Article (49)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 29, 2012, at 1:43 PM, CluckChicken wrote:

    "There's a good chance that as iPads take over the classrooms with digital textbooks"

    I have had some discussions with people from text book publishers and all say the same thing Apple needs to change their required margin before there is a large switch to them becoming available on iPads. Apple wants too large of a cut of the sale and has shown no signs of willing to take a smaller cut, basically publishers have found that right now doing business with Apple will put them out of business.

    They have also said that as schools have looked into this they have found that the costs can actually be greater by going to iPads. The challenges are that fisrt the iPad is expensive, if you average spending $750 a year on books getting an iPad doesn't leave much room to save. If an iPad was to replace a years worth of books it would see significantly more use and there would be a significantly greater change of damage, thus it has been estimated that an iPad would have a single year life span. This was done at a college level not grade school. I would suspect that grade schools are less likely to go with iPads as younger kids are significantly more likely to damage them and I can not see school districts buying hundreds of iPads every year or them being able to tell all their students that their parents have to buy them for them.

    I could see an Andriod or Windows one being able to crack the college market for books as their business model allows for far more flexability in pricing.

  • Report this Comment On March 29, 2012, at 3:07 PM, pondee619 wrote:

    "Apple will correct. It has in the past"

    I've been waiting for said correction to buy more. Other than me buying more at the current price, which always leads to a correction, does anyone have any idea when or at what price it would be a good idea to increase ones holdings?

  • Report this Comment On March 29, 2012, at 5:08 PM, StarWitchDoctor wrote:

    pondee,

    I am adding now, avoiding achoring.

    Does anything allways lead to a correction? If so buy one share to head fake the market then buy two a moment later. However I believe you are seing a pattern which does not exist.

    Scott

  • Report this Comment On March 29, 2012, at 5:36 PM, UgolinoII wrote:

    At the rate they are going, then today was probably it. Tomorrow they will likely be busting new highs and will probably top $1000 by the summer.

    Things have gone awfully quiet on the european front though... did PIGS magically become solvent again... I am not so sure thats finished with yet.

    What do I know though, I've been steadily selling half my AAPL holdings every 6-12 months since I piled all in around the $100 mark, because surely "this price is unsustainable!". Man do I feel stupid. OTOH diversification is probably a good thing long term!

  • Report this Comment On March 29, 2012, at 7:52 PM, rftwpuma wrote:

    One thing that is happening to Greece NOW. The educated and monied people are leaving. No future. And in a Europe without borders it is easy for them to get out of town.

    Thus this does not hold well for the future.

  • Report this Comment On March 29, 2012, at 8:52 PM, lowmaple wrote:

    Poundee If you youhad enough to buy 100 shares You could write a put at a lower price to help pay the cost and then buy some at your feared slumped price if it ever occurred. You get your cake and eat it too.

  • Report this Comment On March 29, 2012, at 11:55 PM, WikiCPA wrote:

    As much as I love Apple's products, I've never purchased a Mac. I can't put down the ipad and i couldn't put down the ipod touch when i first got it. The thing that is stopping me from buying more shares is that questionable new product that you mentioned. If you go back in apple's history, the correction that they made to turn their company around was Steve Jobs. The products they made without him nearly ruined the company, and this could repeat. I still believe that Ipad sales will increase exponentially though, but entering the public education arena? impossible. who takes care of the liability costs (stolen, broken, security measures)? The schools definitely wont, and not every family in america can either.

  • Report this Comment On March 30, 2012, at 10:41 AM, mrsanders2 wrote:

    My kids school has a lease program for MacBooks, participation is near 80%, there is a scholarship program for students who could not afford full price.

    I think it IS the way of the future.

    However, ALL of Apple's success came under and because of Steve Jobs. With out him they nearly disappeared from the face of the Earth.

    That scares me. Still buying, but that scares me.

  • Report this Comment On March 30, 2012, at 1:45 PM, pondee619 wrote:

    OK, Scott,

    Just bought some @ 602.19. Let the correction begin.

  • Report this Comment On March 30, 2012, at 9:12 PM, jdwelch62 wrote:

    Ouch! And you're down for the day, pondee! But that's OK, I think it'll go up some more. I sold about 1/3 of my holdings on Monday at $602.09, only to see the price jog up to over $621 while the rest of the market slumped. But today closed below $600 again. I think it's never a bad idea to take some profit along the way up, 'cuz you never know when you're gonna reach the top of the hill, and it's only paper profits until you sell...

    To reiterate my thesis, I think that Apple without Steve Jobs is not the same company as Apple with Steve Jobs, then, now and in the future. I think Jobs left enough stuff in their pipeline to keep them going for probably 3 years from now, but beyond that... I'm skeptical. Not certain, but skeptical, that they'll be able to innovate without his lead...

    Fool on!... :-)

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