Apple Will Hit $1,111 Sooner Than You Might Think

Apple (Nasdaq: AAPL  ) hasn't been much of a darling this quarter. The stock has closed lower in three of the past four weeks, and the perennial market beater has shed 5.7% of its value this quarter -- and a sobering 12.2% since hitting a recent all-time high.

Despite the likelihood that Apple is the bellwether dragging the market in general and tech stocks in particular lower this quarter, I wouldn't be a contrarian if I admitted to being bullish on Apple. Most people are.

A whopping 45 of the 53 major analysts covering the company have it rated as a Buy or Strong Buy. An equally impressive 92% of the 27,929 of your fellow Fools have tagged the company with an Outperform in Motley Fool CAPS. Nearly everybody's sold on Apple's long-term potential.

They're just afraid of buying in now.

A bullish note lost in the wilderness
Even Apple's blowout quarterly report -- enough to give the company its only winning week this quarter -- hasn't been enough to restore the near-term faith of investors.

Lost in all of the selling was Topeka Capital Markets analyst Brian White. He turned heads a month ago by setting a price target of $1,001. In retrospect, the move seems poorly timed. His call came just around the time the stock was peaking. However, rightfully impressed by Apple's fiscal second-quarter showing, White bumped his 12-month price target to $1,111 two weeks ago.

Apple's all-time high of $644 and targets of $700 or higher seem so far away right now. The debate at the moment is whether Apple will hit $500 on the way down before it revisits $600 on the way up.

There are legitimate reasons for concern.

  • Microsoft's (Nasdaq: MSFT  ) generating buzz for the upcoming Windows 8 operating system, and it's not Vista-flavored. The new platform will work well with touchscreens, giving the world's largest software giant its first legitimate shot at relevance in tablets. Windows 8 should lead the way in the new wave of portables, where monitors detach from keyboards to double as tablets.
  • Wireless carriers in this country are getting fed up with the huge subsidies they have to shell out to Apple on iPhones and the data-hogging culture of its users who are grandfathered into unlimited data plans. Verizon's (NYSE: VZ  ) CFO recently voiced his support for Windows Phone as a necessary third ecosystem.
  • AT&T's (NYSE: T  ) CEO made some interesting comments at a conference a few days ago, including an admission that he regretted ever offering unlimited data to iPhone buyers. He also fears that Apple's iMessage -- a free Web-based messaging service -- is eating into the company's texting revenue. And he naturally fears Microsoft's own Skype, but his comments are adding fuel to the fire of the love-hate relationship between his company and Apple.
  • Sprint Nextel's (NYSE: S  ) share price has been declining and its deficits mounting since the country's third largest carrier began offering the iPhone.

This partner resentment is important to note, because the iPhone has become Apple's workhorse, accounting for 58% of its revenue this past quarter.

The one thing the bears are forgetting
When was the last time that Apple's stock was this cheap?

It's easy to pull up a stock chart, arrive at the conclusion that Apple is trading far closer to its 52-week high than to its 52-week low, and suggest that the stock isn't cheap at all. After all, Apple's stock began the year at $405, and it's trading nearly 40% higher, despite the pounding the shares have been taking in recent weeks.

However, Wall Street has also been scrambling to revise its bottom-line targets higher. In December, analysts were eyeing a profit of $34.77 a share for fiscal 2012, and that estimate has climbed 35% to $46.87 a share. Fiscal 2013's per-share forecast has surged 38% from $38.96 to $53.93. The stock itself has inched just marginally higher than analyst estimates, but we're also now nearly two quarters closer. In other words, on a trailing and forward-looking basis, Apple really is cheaper.

White's seemingly outlandish target of $1,111 is a crisp 21 times next year's earnings, but isn't that still a discount to Apple's growth rate? A year from now we'll also be more than more than halfway through with fiscal 2013. If we look further out to the $60.53 profit per share that the pros are targeting for fiscal 2014 and the $80.59 pegged for fiscal 2015 -- even though those targets, too, will probably continue to inch higher --seeing Apple at $1,111 represents forward earnings multiples of 18 and 14, respectively.

If that sounds fair, keep in mind that we're nowhere close to $1,111. Apple's stock would have to nearly double to hit those perfectly reasonable targets.

As long as Microsoft doesn't crash Apple's party, we might get there sooner than you think.

Apple jacks
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The Motley Fool owns shares of Microsoft and Apple. Motley Fool newsletter services have recommended buying shares of Microsoft and Apple and creating bull call spread positions in Microsoft and Apple. The Motley Fool has a disclosure policy. We Fools don't 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 owns no shares in any of the stocks in this story and is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.


Read/Post Comments (26) | Recommend This Article (83)

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 May 06, 2012, at 8:08 PM, FutureMonkey wrote:

    I'm no good at determining the direction of the market in the short term and neither is Brian White. I suppose the 10% wiggles up and down make a difference to some. But for current share holders more interested in your portfolio value in 2017+ than in 2012, the recent price movement between 644 and 565 isn't all that exciting, nor is a conversation about whether it hits 500 or 600 first. For somebody looking to enter with AAPL today, buy in thirds over the next 3 quarters and you should be plenty happy in 2017.

  • Report this Comment On May 06, 2012, at 11:36 PM, EquityBull wrote:

    I estimate apple will earn at least 50 this year and 80 next year. New iPhone, iTV and china mobile all low hanging fruit catalysts.

  • Report this Comment On May 07, 2012, at 8:07 AM, alexkhan2000 wrote:

    Ah, the hater trolls repeat the same ole tired cliches about how Apple is doomed over and over again like parrots... Laughable.

  • Report this Comment On May 07, 2012, at 10:20 AM, Stockameleon wrote:

    I really liked a post on SeekingAlpha about the value of Apple: http://seekingalpha.com/article/530511-apple-s-actual-value-....

  • Report this Comment On May 07, 2012, at 1:51 PM, deasystems wrote:

    @ConstableOdo: “Apple is dead in the water.”

    I’m fairly sure you mean AAPL, not Apple...

    “I sure wish they'd stop this nonsensical talk of Apple going to $1000.”

    Why do you think such talk is nonsensical? Actually, AAPL going to $1000 makes a lot more sense than AAPL being at $565 as it is now. THAT’S nonsensical!

    “You won't see many articles about what components or features are going into the next DaVinci model, but everyone and their mother is so feverishly concerned about what the next iPhone is going to have, look like or when it's going to be announced. Such ridiculous banter for nothing... Constant Apple [FUD] are so useless and are probably just a drag on the stock.”

    On that, we agree.

  • Report this Comment On May 07, 2012, at 7:57 PM, SUPERMANSTOCKS wrote:

    AAPL will hit 1000.00 when MSFT hits 100.00 again.

  • Report this Comment On May 08, 2012, at 1:11 AM, Chontichajim wrote:

    We aren't afraid to buy in, we are probably just in with about as much as we want to risk on a single security.

    Their marketing skills and consumer friendly products will keep earnings up for many years so who cares if the P/E takes a breather on the way up?

  • Report this Comment On May 08, 2012, at 5:37 PM, eldetorre wrote:

    I don't doubt that in the short run Apple may inch up further, however the problem with Apple right now is that it is all consumer sizzle and no professional steak. Consumers are much more fickle than pros and industrial users are. Their desktop products have shown no sign of innovation in 2-3 years. Thunderbolt was supposed to be optical, Apple decided that electronic connectivity requiring the use of active cables would save them a few bucks. I have already dealt with flaky cables and ports. Thunderbolt stinks for reliability.

    The only thing that Apple does well is packaging/ marketing their brand. At some point the hype will stop. I agree that it will always be a valuable company, but what exactly does the iPhone do that no other phone can do?

  • Report this Comment On May 08, 2012, at 5:51 PM, MFRichard wrote:

    The company will be ok, but the stock will be dead money, when something catches this much hype and is supposed to make every investor rich, think gold and silver last year, tech in 99 and many others...just don´t, avoid this one, it´s too big, has such high expectations, don´t short it either, just avoid and stop writing about it, please, it´s been so overdone it makes my eyes bleed.

  • Report this Comment On May 08, 2012, at 6:00 PM, topbeancounter wrote:

    Despite of what all the geniuses here seem to think whether it will rise, stay the same or fall, Warren Buffet said "no mas" yesterday.

    I think I'll listen to his advise before anything I've read here....

  • Report this Comment On May 08, 2012, at 6:23 PM, wipster56 wrote:

    MFRichard,

    I hope you're wrong, but I'm afraid you may be right, especially after reading a report this morning about the new "iTV." This report in the NYT "Bits" column, said that basically the TV is an overgrown iPhone, with really no great improvements over cnventionial TV's except a cool version of FaceTime and the inclusion of Siri. Here's a quote which wraps it up pretty well:

    "Our source claims to have seen a working prototype of the exact device Steve Jobs was talking about when he said he had “cracked TV.”

    According to our source, the Apple TV looks a lot like Apple’s current lineup of Cinema Display monitors.

    “It resembled an Apple monitor, only much larger,” our source said.

    The Apple HDTV makes FaceTime calls using the built-in iSight camera. The camera is sophisticated, with facial recognition and the ability to zoom into the user’s face and follow them as they walk around the room. This allows users to make video calls from the couch across the room, rather than having to stand smack in front of the TV.

    In addition, calls are initiated by Siri, the iPhone 4S’s virtual assistant. “[Apple] used Siri to make a FaceTime call,” the source said."

    The size is supposed to be 50" to 60" with a price of around $2K, coming out late this year or earlt 2013. Now while that's cool stuff, it IMHO does not represent that drastic rethinking of HDTV's that I think Apple needs to make it the "next big thing" requireded to make everyone sell their existing units in a rush to buy this one.

    I was hoping for an OLED display with the potential of 4K resolution, plus the introduction of a greatly expanded iTunes (or more appropriate iMedia) for an expanded library of movies, etc., potentially implementing a Netflix/Rhapsody rental model.

    I don't know, maybe I'm asking too much, but is this going to be what's required to make them the leader in HDTV's that they are in cell phones, music players, and pads (which is a category they practically invented). Granted, this is all just an unsubstantiated rumor, but what's everybody else's thoughts?

  • Report this Comment On May 08, 2012, at 6:29 PM, tkell31 wrote:

    Buffet's been dead money for years except for the sweetheart deals he cuts, but by all means stick with his advice.

    Apple has shown it is an innovator, growing sales like crazy, and setting up supply chains so they can actually meet the demand for their products. Sound like growth is going to slow down in the near future? I imagine if most of the critics were honest they would admit they've been saying the same thing for years. Will they even admit getting China Mobile on board means an extra 8-10 million iPhone sales (very conservative estimate) that quarter alone? So, who to listen to, people who've been wrong for years and rely on the broken clock theory of investing, or the fastest growing large cap in history?

    That is a head scratcher, but I will go with the proven growth. I'm sincerely amazed people still don't get the potential of their operating system particularly as 50+ million new devices are sold quarterly. Absent the pe staying at absurdly low multiples the stock won't have a choice but to climb to $700+ by years end.

    See you at $1000

  • Report this Comment On May 08, 2012, at 6:33 PM, rojostyle wrote:

    Good article. I like how you made a logical argument and backed it with facts. Unlike what all the haters comments are saying.

  • Report this Comment On May 08, 2012, at 6:45 PM, wipster56 wrote:

    rojo,

    Please don't add me to your list of "haters." I've got a lot of money in AAPL and a significant amount of it almost doubled over the last year... while I'm not betting the farm on it, I have been confident enough to put more of my investment capital there. But because my money is there, I'm just extra concerned that they can continue getting the golds, kind of like Michael Phelps in London... I just hope Jobs is still influencing their decisions from wherever he is.

  • Report this Comment On May 08, 2012, at 6:49 PM, BuffettJunior1 wrote:

    People used to say the same thing about Microsoft and all of the other high-flyers of the late 90's tech bubble.

    People must realize that no company can sustain double digit growth for very long. For example, Apples 5-Yr Revenue CAGR is over 40%! While that growth is very impressive it simply cannot continue. In the long run all companies end up growing at about 3% per year (average rate of inflation) regardless of the initial rate of growth.

    In the long run I can guarantee that Apple will disappoint investors and the stock will eventually go out of favor. However, by then we will have a new high-flyer that all the analysts love and think deserves some ridiculous valuation.

  • Report this Comment On May 08, 2012, at 7:06 PM, BuffettJunior1 wrote:

    Speculating whether or not a certain stock will hit $1000, $1300, $2000, etc..... is pretty pointless. What truly matters is the intrinsic value of that business. If the current stock price is significantly below that intrinsic value then that stock is a buy - it’s as simple as that. Guessing where a stock price will be next week, next month, or next year is what speculators do. The true investor is not concerned with such none-sense.

    I also know one thing for sure - in the long run speculators (short-term traders) don't make very much money. I can’t name a single short-term trader who is considered one of the richest people in the world, not a single one! However, I can name (and I'm sure you could too) many long-term investors who are also among the richest people in the world.

    The truth is speculators (gamblers/traders) are addicted. To them it’s exciting to trade short-term, to make wild and stupid predictions just for the chance to make a few bucks. I suggest people stop listening to these idiots who try to predict stock price movements because it will only cause you to lose money in the long run. Focus on buying a good business (stock) at a reasonable price and hold on to it for a very, very long time. Now that is the secret to becoming rich! It might not be as excising as gambling, but at least you will be able to sleep at night knowing that your money is safe.

  • Report this Comment On May 08, 2012, at 7:10 PM, Lebanesedale wrote:

    Did I miss something? Is Steve Jobs still alive and at the helm? Does anyone remembetr what happened to Apple the last time they lost Jobs? The fall will not happen fast or soon but it will happen. Without that type of driving innovation they cannot succeed. They always were a cult of personality. Yes, they probably have some Job's inspired gadgets in the channel but what happens after that? The only reason Apple survived the bad times was because they had, and still continue to, gouged their customers that they had so much cash on hand tha they could live off of the interest even though their losses per quarter were huge. They are in the same boat now but the end will be the same and eventually they will have to evolve as did IBM or eventually become irrelevant.

  • Report this Comment On May 08, 2012, at 11:12 PM, lowmaple wrote:

    O K I'll say it. This time its different. Jobs is gone but APPL I think have learned their lesson from last time and know to generally stay the course so won't drop off the cliff as before. Also the volatility is what could have it rebound to a greater extent than Priceline etc. My crystal ball broke so I don't know when that will be.

  • Report this Comment On May 09, 2012, at 6:02 AM, cduance wrote:

    Interesting that the networks are not happy with the high subsidies and total amount of bandwidth they are giving away for free. If the balance changes and they see that its actually better to not sell the iPhone than to sell it then that could be a big shakeup for the market.

  • Report this Comment On May 09, 2012, at 7:12 AM, TradeDragonfly wrote:

    Both sides are so confident that Apple will either falter or prevail. Amusing. If you really think it's so terrible, short it. If you think it's awesome buy it. People make and lose money every day.

  • Report this Comment On May 11, 2012, at 12:28 PM, WineHouse wrote:

    BuffettJr1 wrote, "In the long run I can guarantee that Apple will disappoint investors and the stock will eventually go out of favor. However, by then we will have a new high-flyer that all the analysts love and think deserves some ridiculous valuation."

    Ridiculous valuation? You think a P/E of 14 is a ridiculous valuation?

    Well, maybe it is, but not in the way you seem to think!

    Share price does not equal VALUATION. Take a really low-price-per-share stock, do a 1:1000 reverse split, and you've got a really highly-price-per-share stock, but the VALUATION of the company hasn't changed one iota. Price per share is totally irrelevant to valuation.

  • Report this Comment On May 11, 2012, at 2:51 PM, tryan102790 wrote:

    Lets be reasonable here. Stick with fundamentals despite the rhetoric and emotions that Apple generates.

    Solid Markets + Solid solutions + Great Execution = Increased value. This is what we're investing in. Can Apple compete on this basis? Yes at this time. If we're wrong..then that's why I'm diversified.

    We're forgetting that the markets themselves are growing no matter what share Apple has (vis a vis the Android comments) Buffett has stated that his concern is in not understanding the future of these markets. If you like Apple...you are assuming that they DO understand them.

    All in all....this is what makes this FUN!

  • Report this Comment On May 11, 2012, at 6:27 PM, jonesericr wrote:

    As for Microsoft eating Apples lunch, my words not yours, If they can't get their timing right it won't matter what they put out. So far they have been more then a step behind Apple in rolling out products that they conceived before Apple. They just let it sit and then tried to play catch up. Microsoft can put out products that people want they just have to do it quickly and not tie it to legacy systems that create bloat wear.

    As for the cell phone carriers they're upset and calling customers names such as "data hogs" because they don't want to spend the money to upgrade their infrastructure. I live in Japan and have no caps on the amount of data I use, my monthly bill though higher than my 3Gs is still $80.00 a month and I use lots of bandwidth. If technology keeps moving forward you won't need a carrier like AT&T, Sprint etc... to make calls, surf the web or text. You can do that now with viber, and skype on your phone next to a hot spot. Why do you think most carriers hate tethering?

    ej

  • Report this Comment On May 14, 2012, at 10:41 AM, woodNfish wrote:

    The headline of this article proves that Apple stock is over-hyped. Anyone buying at this level should be prepared for huge losses if they don't trail a stop.

  • Report this Comment On May 14, 2012, at 12:57 PM, sept2749 wrote:

    AAPl's price doesn't seem to be a function of their earnings or potential. I feel that many large holders sold lots of shares immediately prior to earnings so they could show some good profits for their clients. This, I believe is the reason that AAPL price is low and stagnant right now. I'm long on AAPL. If it goes way down I buy more. It's not blind faith - check out their numbers and the very cool "toys" they make - add that to no debt and huge amounts of cash and you have a company that is at the top. Yes, they could fall eventually I imagine as nothing is forever but I feel pretty good about APPL for the time being.

  • Report this Comment On May 15, 2012, at 8:53 PM, dwilh51183 wrote:

    AAPL IS A STEAL RIGHT NOW! A STEAL

    WHAT A GREAT COMPANY WITH SALES STILL VERY STRONG CHEAP AND THEY MAKE 1 BILLION DOLLARS EVERY 2-3 DAYS. GREAT DIVIDEND AND 10 BILLION BUYBACK ON THE WAY. HEY, DID YOU UNDERSTAND THAT LAST COMMENT? 10 BILLION $$ BUYBACK THATS A LITTLE MORE THAN 999 MILLION X 10.999

    THATS GONNA CREATE A LOT OF BUYING PRESSURE IN AAPL SHARES AND ALSO CAUSE A SHORT SQUEEZE. BUY AAPL NOW BEFORE YOU MISS THIS BARGAIN

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