The iPhone 6 Could Drive Apple Inc. Stock Past $110

The iPhone 6 could provide a significant boost to Apple stock.

Jul 15, 2014 at 11:00AM

Nearly two years ago, Apple (NASDAQ:AAPL) launched the iPhone 5. This was a radical departure from the prior generation iPhones in a number of key ways, including -- but not limited to -- an A6 processor with custom CPU cores, an aluminum chassis (complete with chamfered edges), a much improved display, and much more. The phone was a critical and commercial success, but unfortunately significant margin compression took its toll on Apple's bottom line.

Apple's market cap peak
At its $705 presplit share price, Apple's market capitalization was about $663 billion -- an impressive feat, especially considering that Apple didn't need any tech-bubblelike multiples to get there. As of the time of writing -- split unadjusted -- Apple stock trades at $670. But as far as market capitalization goes, Apple is still quite a ways off from its all-time high.

Indeed, thanks to a very aggressive (and shareholder friendly) buyback program, Apple commands "only" a $577 billion market capitalization. This is still about $86 billion off of Apple's all-time highs.

Can Apple reclaim its past highs?
If Apple were to recover to its market capitalization high, then the stock would be trading at about $110 per share, split adjusted. Now, to be completely fair, note that Apple's net income for fiscal year 2012 came in at $41.7 billion -- a record that Apple has yet to be able to hit again.

In fact, during the company's fiscal 2013, it "only" generated $37 billion in net income. This was driven by a $1.9 billion increase in operating expenses and a $4.5 billion drop in gross profit. These were partially offset by a $600 million boost in other income.

Fiscal 2014 looks as though it's on track to be an improvement over fiscal 2013, with consensus sitting at $38.78 billion. Interestingly enough, if we dig deeper into the consensus estimates for the next few years, it looks like the expectation is that Apple doesn't overtake its 2012 net income peak until fiscal 2016.

Does this mean we have to wait until 2016 for $110?
If it's going to take a couple of years to blow past fiscal 2012 net income numbers, does this mean that investors are going to need to wait until fiscal 2016 to get to $110? Well, the answer is probably "no" for a number of reasons:

  1. Buyback continues to lower share count. Apple is extremely serious about bringing down the share count, so even as investors wait for net income to hit new highs, the company will continue to bring down the share count, lowering the market capitalization bar to get to $110 per share.
  2. Consensus is meant to be broken. The consensus estimates represent sell-side analysts' best guesses as to what kind of revenue/profit numbers that Apple will ultimately do. Apple could fundamentally disrupt those numbers with a hit new product, unexpected market share gains, and so on. Consensus merely represents the bar, and Apple could very well jump right over it.

In fact, to that last point, there's more to take a look at.

Why the sell-side could be playing it safe
The numbers from the sell side, which imply that Apple won't get back to its net income peak until the end of fiscal 2016, actually seem to be a bit conservative. 

Indeed, Apple has a number of tailwinds that should begin to kick in quite forcefully beginning this fall including two new high end iPhone 6 models (which should help Apple gain meaningful share in the high margin, high end portion of the smartphone market), likely refreshed iPad models with Touch ID (and as the iPhone 5s proved, Touch ID is a "must have" feature), and potentially even an iWatch. 

Though most of the impact of these products will be in fiscal year 2015 rather than fiscal 2014 (this year), the current consensus of operating profit growth in fiscal 2015 of less than $3 billion over fiscal 2014 seems very conservative. And if that number is off, the rest of the numbers -- which use the fiscal 2014 and 2015 estimates as a baseline -- could prove too low as well. 

And, if that turns out to be the case, and if Apple continues on its buyback spree, the stock could hit $110 sooner rather than later.

Apple's next smart device may be the driver to surpass $110
Apple recently recruited a secret-development "dream team" to guarantee its newest smart device was kept hidden from the public for as long as possible. But the secret is out, and some early viewers are claiming its everyday impact could trump the iPod, iPhone, and the iPad. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here!

Ashraf Eassa has no position in any stocks mentioned. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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