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.
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. (Nasdaq: MSFT)
- 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
CFO recently voiced his support for Windows Phone as a necessary third ecosystem. (NYSE: VZ)
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. (NYSE: T)
share price has been declining and its deficits mounting since the country's third largest carrier began offering the iPhone. (NYSE: S)
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.
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