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Is Apple Going to $400 or $500 First?

While Apple's (NASDAQ: AAPL  ) calamitous plunge from more than $700 a share and the loss of its title as the largest company on earth may be the ultimate cautionary tale about flying too high, you must ask yourself where the stock is going from here. The company has been unfairly penalized for a slew of essentially arbitrary "problems" -- like selling a mere 47.8 million iPhones last quarter -- but there are some real concerns on the horizon, both company-specific and systematic to the market. Ultimately, I remain bullish on Apple over the medium and longer term, but I think the stock is headed for $400 before it reverses and heads higher.

Positive catalysts
With the rollout of the BlackBerry 10 OS and the new Z10 smartphone from Research In Motion (NASDAQ: BBRY  )  (know known as BlackBerry), Apple investors can cross any immediate threat to the company's U.S. sales off the list of concerns. The Z10, which did get some favorable reviews, will not be released for sale in the U.S. until March. While it is doubtful that the struggling BlackBerry will be able to make a meaningful dent in Apple's numbers, as the earnings release showed, a few million units can matter; the 47.8 million iPhones referenced above fell short of the 50 million that many were hoping for from Apple. Remember, since we are talking about the immediate path of the stock, the competitive forces that play out in the next month are critical.

Additionally, Apple just announced that it is releasing a 128 GB iPad to meet some of the storage concerns of business users. The larger capacity is specifically targeted at users that have large memory requirements, and it's a positive for Apple because it can capture a stronger margin while remaining competitive. The device is set to be released just days before Microsoft (NASDAQ: MSFT  ) releases the new Surface Pro tablet on Feb. 9. The fact that Apple is signaling the importance of enterprise users is a positive.

Negative catalysts
The flip side of the large capacity iPad announcement coin is the fact that the Surface Pro is set to be released. While I think that the device has the potential to be a disruptive force over the long term, any type of positive reception has the potential to hit Apple shares hard. The market has been overlooking positive news for the company and hammering it on bad-to-neutral news. If the Surface Pro has a successful kickoff, particularly in the press and blogosphere, investors may take the stock down, even if the move is only temporary and even if it is only to send a message.

The way Apple has been reacting to news lately, it feels like anything short of negative reviews of the Microsoft device threatens the immediate path of Apple shares. Given my positive outlook on the new Surface Pro and its ability to change the entire mobile computing landscape, I see it acting as a real negative catalyst.

The other, more systematic risk facing Apple shares is the overall strength in the stock market. The major indexes have not seen these levels since 2007. This opens the door for a healthy correction before the market tries to push higher, and it feels like that is on the horizon. A general sell-off by the broader market will almost certainly take shares of Apple down as well.

Regardless of the overall view you may take of the market, it has rallied significantly and is due for a breather. Fools are not market timers, but this does not preclude being vigilant about the current state of stocks relative to where they have been. Taking a long-term view does not require being blind to the immediate position of things.

Which handle wins the tug-o-war? 4 or 5?
I continue to believe that with a P/E ratio of 10.4 and a dividend yield of 2.4%, Apple remains one of the most attractive core holdings on the market. With that said, I am looking for the stock to stumble once or twice more before heading higher. Apple needs to shake loose the remaining bulls before bear-hunting season opens for business.

The Surface Pro release may shake things up on Feb. 9, and any market weakness will take shares lower as well. The company maintains its longer-term leading role, but caution is prudent over the coming days and weeks. Ultimately, if you can buy shares before $425, they are a bargain, but I still think we touch $400.

There's no doubt that Apple is at the center of technology's largest revolution ever, and that longtime shareholders have been handsomely rewarded with over 1,000% gains. However, there is a debate raging as to whether Apple remains a buy. The Motley Fool's senior technology analyst and managing bureau chief, Eric Bleeker, is prepared to fill you in on both reasons to buy and reasons to sell Apple, and what opportunities are left for the company (and your portfolio) going forward. To get instant access to his latest thinking on Apple, simply click here now.

Read/Post Comments (6) | Recommend This Article (5)

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 31, 2013, at 9:23 PM, neocolonialist wrote:

    I have been a long time beneficiary of Microsoft's dominance on the desktop. I have been up to my neck in MSFT technology for over 13 years now. And I have to say, I think you might be overstating the Surface case here. MSFT reported that only 64GB of the 128GB of space on the new surface will be user usable. And the price is steep. And its Windows 8 which hasn't seemed to wow the markets so far. I just don't see the Surface being a credible threat to AAPL.

    Bill M.

  • Report this Comment On January 31, 2013, at 10:07 PM, PieroG35 wrote:

    I also believe your argument for a $400 stock price before a $500 stock price is weak. I believe MSFT is no treat to Apple at all. Apples investor conference at the end of February will be the catalyst to bring the stock above 500. I believe you confused the words bulls and bears at one point in your article.

  • Report this Comment On January 31, 2013, at 10:43 PM, larryw101 wrote:

    I agree with the above comment. I too think you confused bears and bulls. Should have said Apple needs to wait until bear season is over and the bulls are running in the street.

    Regardless, Apple will see $500 before it sees $400 based on new products, China opportunities and perhaps sustained customer loyalty. After owning pc's for over 10 years, I'm quite happy with my Mac pro, Ipad and Iphone..........

  • Report this Comment On February 01, 2013, at 12:01 AM, techy46 wrote:

    $500 first then $600 after Microsot goes to $40 and then W8 and WP8 users turn off Google.

  • Report this Comment On February 01, 2013, at 12:19 AM, JokerJoey wrote:

    I wanted to find an appropriate article to comment on for this little piece of news:

    So this morning (or afternoon depending on your time zone) at the "Half-Time" report, one of the guys on CNBC starts talking about how terrible Apple's monthly performance in January has been and that it's stuck in the mud and blah blah blah...all that stuff. He then comes along and says that he bought puts to protect himself on his core holding of Apple. Then the other guys chime in on how badly Apple is doing, after which the first guy comes back and says something to the effect that the next support level looks like $440 and it's heading that way.

    Does anyone see anything wrong here? No? Let me enlighten you:

    First the guy says he bought puts, then everyone chimes in TO DRIVE THE STOCK DOWN AND INCREASE THE VALUE OF THEIR BUDDY'S PUTS! What the heck...nah...let's call it for what it is: WTF is that all about!!??

    This is like the guy on a popular Cable show calling his "friend" in to give a "realistic appraisal" of an item that someone is trying to sell him!!

    NOW LISTEN: People need to put all this negative knock-the-price=down stuff aside and look at the company and the fundamentals and the insanely great valuations inherent in Apple right this minute. Then GO BUY SOME. Right now after you read this (or as soon as the pre-market opens).

    All this other talk is just crap (pardon my French).

  • Report this Comment On February 01, 2013, at 12:40 AM, blueofblue wrote:

    silly article!

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