Next Stop for Apple: $400 or $600?

Apple (NASDAQ: AAPL  ) closed below $500 on Tuesday, for the first time since mid-February of last year. It bounced back above that marker today.

As Apple straddles both sides of $500, it's only natural to wonder whether the world's most valuable technology company will hit $400 or $600 next.

The tech bellwether moved higher today despite another analyst souring on the investment. Pacific Crest analyst Andy Hargreaves slashed his rating on the stock -- from outperform to sector perform -- fearing that it may be all downhill for the company's smartphone and tablet markets now that the affluent market has been pretty much saturated.

The only way for Apple would grow from here, Hargreaves argues -- as retold by Barron's Tech Trader Daily -- is to move to lower-margin products.

Reports earlier this month of Apple working on a cheaper iPhone and a report earlier this week on supplier orders for iPhone 5 screens being slashed certainly seem to point to a future where Apple will have to choose between keeping its margins up on lower unit volume or sacrificing margin for the sake of market-share growth.

Google's Android continues to gain market share, and Research In Motion has become a market darling in recent months. However, the threat here is more about Android cornering the mainstream smartphone market than the chances of BlackBerry 10 nibbling away at iOS on the high end.

Hargreaves doesn't think that the iPhone is toast. He sees Apple selling 145 million units this fiscal year (down from 151 million) and 151 million in fiscal 2014 (down from 161 million). He sees even healthier growth for the iPad. However, more phones doesn't mean more profits.

We're seeing more buyers opting for the cheaper iPhone 4 and 4S models. The situation gets harder overseas where carriers that aren't subsidizing handsets are selling far cheaper Android phones instead.

Hargreaves cites World Bank Development Research Group data showing that there are 875 million people in the world earning $15,000 or more a year, and Pacific Crest estimates that 25% are already using the iPhone. It will be harder to grow from here now that the rich early adopters have bought in.

This is a grim scenario, but don't be so quick to bet on Apple hitting $400 instead of $600 next.

Apple's cash and marketable securities add up to more than $125 a share for Apple. A lot of that money may be locked up overseas, but it still pushes Apple's earnings multiple deeper into the single digits on an enterprise-value basis.

Yes, Apple's back is to the wall at this point, but don't underestimate the hunger of an innovator. Apple knows that it can't just show up with a marginal screen size increase and a few token upgrades. In fact, even annual updates may not be enough given the perpetual flow of fresh Android smartphones and tablets. We'll see if RIM raises the bar on Jan. 30, forcing Apple to radically improve its next iPhone.

The aura of negativity is thick. It's hard to believe that Apple was topping $700 just four months ago. However, don't count Apple out. Just because it hasn't had to dig too deep into its bag of tricks to sustain its relevancy doesn't mean that it won't in the near future.

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Read/Post Comments (11) | Recommend This Article (4)

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 January 16, 2013, at 9:50 PM, JokerJoey wrote:

    I listened to Andy this afternoon and was frankly surprised, because he seems to be following the herd on all the various talking points vis a vis supply chain and order cuts and blah blah blah. The point that everyone misses is that no one, NOT ANYONE, knows what's REALLY going on except the folks in Apple's inner circle. I GUARANTEE you that they would not put the company into a position without some very substantial ammunition in their clip, which they will unleash when no one expects it, with incredible results. (and please pardon the gun reference there....but I digress....). Anyone betting against APPLE is going to be very, VERY sorry.

  • Report this Comment On January 16, 2013, at 10:38 PM, digitally404 wrote:

    $400.

  • Report this Comment On January 17, 2013, at 12:20 AM, SimchaStein wrote:

    I say $600. What is the case for $400? Average of 51 analysts is about $740.

  • Report this Comment On January 17, 2013, at 12:40 AM, MrSmith210 wrote:

    Did you not just read the case for $400? I too say $600.. but dear god how can you ask what the case for $400 is? It's been on every investment site regurgitated over and over for weeks now in the midst of all the negative hysteria leading up to next weeks report. Not to mention the article you commented on here lays it out pretty clearly.

    And analysts consensus is your immediate argument as to why you say $600? Ugh.

    Again I too say $600. But for a whole crop of actual data, trends, figures, and research. Irritated with your comment. lol...

  • Report this Comment On January 17, 2013, at 1:16 AM, TimKnows wrote:

    There is no question here, it is going to $ 400 this year as they have nothing to offer and the worst OS in the industry. Apple has failed to innovate, insulting consumers with two many versions of sub-par products.

  • Report this Comment On January 17, 2013, at 1:40 AM, demodave wrote:

    If Apple only reports zero growth YOY same Quarter, $600 is a shoe-in, and with all the new product releases, the only reason for zero growth is the inability to meet demand. FY13Q2 guidance should be *very* interesting. Apple's P/E is ridiculously low. Forward and backward.

    Rick, I am astonished and disappointed that you ask the question, if for any other reason than for eyeballs, but, because I generally respect your work, I read the whole thing.

  • Report this Comment On January 17, 2013, at 2:47 AM, maniladad wrote:

    Rick, I notice that you didn't actually answer your own question. I don't know either.

  • Report this Comment On January 17, 2013, at 7:49 AM, jdmeck wrote:

    $600.00. $400.00 just makes no sense unless sales drop to near zero.

  • Report this Comment On January 17, 2013, at 8:18 AM, mill3417 wrote:

    The space between... Lol.

  • Report this Comment On January 17, 2013, at 12:45 PM, Fool wrote:

    Apple's due for a new blockbuster. It's typically about three years between their monster new product releases. The iPhone was launched in 2007 and then iPad in 2010.

    Then again, that was under Steve Jobs...who had a pipeline a decade-deep planned out in his mind. For me, the biggest question for the company is whether or not Cook can continue to innovate. If YES, then there's nothing holding AAPL back from 700+ again. If NO, then the upgrades of the iPhone/iPad will eventually get stale and consumers will move on.

    We shall see what happens..

  • Report this Comment On January 17, 2013, at 4:54 PM, MoneyPortal wrote:

    $400.00

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