On Wednesday, JMP Securities surprised The Street by upping its Apple (NASDAQ:AAPL) price target to $150 per share from $135. The price target, the highest currently on record, values the company at nearly $900 billion. The reason for the upgrade: An "explosive" first-fiscal quarter, led by sales of the newest iteration of the iPhone.
JMP Analyst Alex Gauna spoke to Barron's Tiernan Ray to discuss his rationale for the 11% price target increase:
We raised our estimates and price target on the stock, following a review of what we saw from Black Friday to Cyber Monday. Demand is exceptionally strong both in the U.S. and China, with lead times at higher memory count models of the iPhone 6 Plus and also the iPhone 6. Also, there's been strong demand for the iPad Air 2. The iPhone 6 Plus is stocked out at all three major carriers in China, and we're seeing the longest lead times we've seen at Apple stores there, so very consistent with what we've seen in U.S. Overall, we're seeing very limited supply, with lead times still very strong.
Avago Technologies' strong quarter bolsters the case for an Apple blowout
Still, limited supply doesn't necessarily indicate strong demand. However, wireless chipmaker Avago Technologies (NASDAQ:AVGO) reported a blowout quarter by reporting its overall revenue rose 25% sequentially this quarter. That's important because it is a big supplier for Apple's iPhone.
Matter of fact, the company mentioned the "product ramp of a new smartphone generation at a 'large OEM'" for its amazing 73% sequential revenue increase in its wireless division. Apparently Apple is akin to Voldemort for Avago -- so powerful you don't speak its name. But it's pretty clear what OEM CEO Hock Tan is referring to for this quarter-over-quarter revenue increase.
All good news, should you sell?
This is all good news for Apple shareholders, but Gauna is an imperfect messenger to lead the pack on Apple's target price. Courtesy of CNBC, via Fortune, the day Steve Jobs stepped down as CEO, Mr. Guana argued, "This is the beginning of the end...I think investors should be looking for diversified positions out of Apple at this point." The company traded at a split-adjusted price of $50 at that time and sold off another 5%, mostly off of Gauna's negative, but convictive call. Unfortunately for Gauna's followers, Apple doubled over the next 18 months and they missed out on a gain of 140% (plus dividends).
That's not to say analysts and investors -- myself included -- will always be right; we all know that's not the case. However, for many Wall Street analysts there's a certain gamesmanship to being the loudest, most aggressive call on a stock ... especially when it succeeds. Many famously remember the rise of Meredith Whitney, the analyst who rose to fame with her bearish prediction on Citigroup. She went on to win CNBC's Power Player of the Year in 2008. Her next big prediction, municipal debt defaults of "hundreds of billions of dollars" that will manifest itself in the next 12 months was covered by 60 Minutes in 2010. To date, it's been spectacularly wrong.
For long-term investors, it is always good to see Wall Street analysts agree with your investing thesis, but fundamentally nothing has changed about the company. In the end, investors should care more about Avago's blowout quarter more than one analyst upgrade.
Jamal Carnette owns shares of Apple. 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.