Is Apple going to $700?

Analysts are upping their price targets for Apple, catching the excitement from the latest iPad, a rumored TV and a just-announced dividend.

By The Fiscal Times Mar 19, 2012 2:54PM
Image: Arrow Up (© Nicholas Monu/iStock Exclusive/Getty Images)By Suzanne McGee, The Fiscal TimesThe Fiscal Times

Wall Street is calling it the "700 Club" -- the group of buy-side analysts who have gone public in recent days with projections that Apple’s (AAPL) stock will soar to $700 or more.

The stock has edged closer to that goal Monday, gaining more than 2% after the company's announcement that it will start paying a quarterly dividend of $2.65 a share and launch a $10 billion, three-year stock buyback program.

It may take a few prayers to get all the way to $700, but so what? Even though that figure is still $100 above its current share price, no fewer than five analysts jumped aboard Apple's bandwagon last week, just as the first of the company's new iPads arrived in stores and made their way into the hands of eager consumers.

PiperJaffray was the latest addition to the 700 Club, when analyst Gene Munster boosted his price target on the stock to $718 from $670 previously. Munster had previously expected the iPad to lose market share next year; now he’s calling for 2013 iPad sales to jump 44% from forecast levels this year. Even if rival tablets catch on, Piper Jaffray still expects Apple to own 60% of the market by 2015.

Of course, the Apple bulls don't rest their case solely on the prospects for the brand-new iPad and its future incarnations. There is also the iPhone. Munster boosted his outlook for both the number of units sold and market share after Apple reported an astonishing 25% surge in sales of its iPhone 4S in its fourth quarter. Indeed, Munster now expects Apple's share of the smartphone market to rise from a previous estimate of 20% in 2013, to 23% that year and 33% by 2015.

Other analysts who are banging the drum in support of Apple 700 include Mike Walkley of Canaccord Genuity (target: $710) and Katy Huberty of Morgan Stanley (target: $720). Such a move seems almost inconceivable, given that Apple has already soared 44% this year from its Dec. 30 close of $405 a share. If it does rally above $700, that would mean it has gained more than 72% in a single year -- an astonishing feat for such a large and well-established company.

By some measures, that would leave the company richly priced. For instance, the company's current book value is only $82.45 a share. On the other hand, Apple's earnings growth has been so amazing that its valuation is well in line with the market. Apple trades at only 16.7 times trailing 12-month earnings, and 13.6 times prospective earnings. That's not pricey, by any stretch of the imagination, particularly when measured against both the growth Apple is recording and the stock's momentum.

Peter Misek, an analyst with Jefferies & Co., for instance, now expects Apple to earn $10.72 a share in the first quarter, thanks to the contribution of the new iPad, up from a previous forecast of $9.51 a share. The fundamentals are strong.

But the sheer magnitude of the stock's overwhelming advance, ironically, is causing a different kind of problem. Already, with the first quarter of the year still two weeks away from drawing to a close, it's turning into one of those markets where an investor's success or failure depends on whether he's been right on a single stock. Buy Apple, keep buying Apple, and buy more Apple: That has been the recipe for outperformance.

Anyone who hasn't drunk the Kool-Aid is going to fall by the wayside this year, performance-wise. This isn't the first time investors have had to watch in astonishment as success boils down to getting the direction and timing of a single stock right. During the height of the dot-com boom, getting Cisco (CSCO) right was what it took to outperform the market and for an investment manager to beat her peers. That ended in tears when Cisco's share price and valuation plunged.

The Apple story -- and its valuation levels -- may look very different to investors more than a decade later, but the very fact that there is such a parallel may cause some to hesitate. After all, with every additional $25, $50 or $100 in per-share valuation of Apple's stock comes more vulnerability to the unexpected. The higher that stock price, the more skittish investors will be, and if there's a problem with the fancy new iPad screens or the latest iPhone, well, that's a recipe for a meltdown.

That's particularly true because if Apple is to bear out the predictions of the "700 Club" and see its share price rise another 20% or so this year, it will be relying on newer investors to take it over the $700 mark. The rapidity of the stock's rise in recent months -- it looks almost like a straight vertical line on any stock price chart -- has forced many long-time fans to refrain from adding to their positions or even to think about unloading some of that stake, whether they want to or not.

After all, while the broader stock market has done well so far this year, it hasn't fared nearly as well as Apple. So on a relative basis, investors who once had 4% or 5% of their fund invested in the technology giant may find themselves with positions of 7%, 8% or even more, depending on when they bought and how well their other positions have done.
 
At the very least, those investors will refrain from future buying. Depending on what position limits they have in place, they may have to lighten up. Are there enough new Apple aficionados to offset any downward pressure on the stock as such selling ripples through the market, and to propel the share price higher still?

That's something that the 700 Club may not have factored into their estimates, which rely principally on fundamentals, such as future demand for Apple products. Apple has grown so much and so rapidly on both an absolute and relative basis, regardless of the fundamental investment case to be made, is there simply enough capacity in the market for investors to own more of it without tossing concepts like risk and diversification out the window?

Related Links:
6 Things Apple Could Do with Its $100 Billion in Cash
For iPad3 Investors, the Real Winner is Verizon
Photo Gallery: 8 Best Apple Products

26Comments
Mar 19, 2012 5:20PM
avatar
I own it and will sell it when millions of people in their teens, 20's, 30's, 40's stop buying their products. I buy none of the products, do not need them, and am not tech-savvy enough to want them, so let the youth of the world do the work for me.  When they wait in line for days on end to buy the new i-Pad, somehow I see my stock heading north.  One thing is sure; Apple products are better than Krispy Kreme doughnuts or Vermont Coffee. 
Mar 19, 2012 7:16PM
avatar
Apple is becoming a bubble. They simply can't keep exceeding their extraordinary growth rate. At some point, it will slow down or they will have labor problems or the sheer magnitude of the competition will erode some market share or market dynamics will lower prices and cut into margins..As the share price keeps rising so does the risk. You don't want to be the last money in. Bad sign when everyone recommends the stock. When everyone owns the stock, who's left to keep demand up except the fools who buy too high. I missed this "party" but there will be others. Remember, every company that passed 500 billion in market cap fell back and never exceed that number again. I expect some major profit taking will occur going forward. Great company but too late to buy.
Mar 19, 2012 9:56PM
avatar
The news tonight says apple (not one of the EVIL corporations, they are loved) has like 68 billion in cash overseas.  Why don't they bring it back?  Corporate tax rate of 35%, highest of any country in the world.  Spare me the "it doesn't matter, they should look out for Americans" garbage.  Lower the tax rate, bring in the money and people will go to work and tax revenues will INCREASE even with lower rates.
Mar 19, 2012 7:07PM
Mar 19, 2012 10:51PM
avatar
Will apple go past $700? Yes, and some. All the fundamentals suggest that Apple is still under-priced. The PE ratio is a mere 17 while, for all of the past 9 years, each year earnings grew far, far over 17% ... Most PE ratios (especially for American companies' stocks) are no less than the earnings (and EPS) growth rate. If anything has kept Apple's PE down it's that people expect it to fail, that they believe it's over priced, that they speculate the growth rate is unsustainable and the like. It's also worth mentioning 1) that Apple's buyback will necessarily increase EPS relative to earnings for the next year, 2) that, in the short term, the shares they purchase, which will increase in price, will somewhat counter the loss from the dividend they're paying and 3) that in the foreseeable future Apple should only grow, provided they don't do anything uncharacteristically stupid. Apple "the stock" is no where near being a bubble... any monkey capable of using a calculator would say it's rather deflated.

Apple has a spectacular growth rate, and we should question whether it can keep it up and for how long. These questions cannot be addressed here...and, of course, cannot be fully answered because we never know if/how they'll find new, ingenious ways to grow (like McD's with the drive-thru window..who would have guessed it?!). What can be said, however, is that they will certainly stay up for the next year, and most likely the next few years. Eeyore the donkey might think the EPS growth rate will suddenly drop next year to, say, 10 percent, or to the low rate of a slow growing utility, but, subjectively speaking,  that's absurdly pessimistic and, objectively speaking, highly improbable

In terms of overseas jobs and outsourcing, I couldn't care less. Americans are lazy; there are plenty of jobs picking berries on farms, being crossing guards (in my town the police must do this), and the like. They are not prestigious jobs, certainly. But most Americans are so arrogant they simply won't take these jobs, and that's our own fault. In terms of how Apple treats their employees, I think there's a bit of conspiracy ... can you say: 'media sensationalism?' ... 'skewing the facts' ... if anything unethical is happening it should stop, but it seems like there's less of it than what it's made out to be.
Mar 20, 2012 10:23AM
avatar
I think Apple will have not only iTV but also the only, and cheapest, service by which you can get most of the content you want.  That alone will be huge and worth the next stage in its growth.

For myself, I don't put more than 10% of my portfolio in any stock, and Apple's one of those, and it will remain so until it gives me a reason not to.  I think they're undervalued with a PE of 17, most other companies with insane popularity and growth get PE's of 50 or more.  And this one is not only a good company, with good products that is obsessed with ease of use and quality of manufacture (so far), it's got a cult of personality -- how many other companies can claim that, much less the most valuable company in the world? 

the new iTV, and its content, may be the last frontier for Apple before it truly becomes a mature company with mature-company growth rates, but not quite yet.

Mar 19, 2012 5:06PM
avatar

I'm not sure that it is overpriced guys. While you were thinking that the stock went up $15 today and close to $50 a share in a week. At some point ya just have to say that the company knew what they were doing and you missed it. 

Mar 19, 2012 7:08PM
avatar
Why all the emphasis on the Apple cash hoard?  GE has more money.  Let's hear what they are going to do with their money.
Mar 19, 2012 9:52PM
avatar
Sure it will.  So many will jump on the train expecting to make a fortune when it is already too late and suddenly WHAM!, drops like a rock.  
Mar 20, 2012 7:11AM
avatar
That's for sure, my next target is 880$
avatar

the stock could crash if the DoJ decides to go after them for eBooks.  Too much market control over hardware and software and peripherals and content - what if DoJ urges a break up?  In the 70's who'd have thought that about AT&T?

 

Plus why is this company more valuable than a GE?  too many eggs in one basket

Mar 20, 2012 7:56AM
avatar
I saw a commercial from Sumsung pushing their TV with voice control and gesture control. So what will iTV offer that will be any better? I'm an Apple fan, but I don't see any advantage to an Apple branded unit except the ability to flawlessly connect to your Mac, iPhone, and iPad. I worry the iTV may be the begining of the end.
Mar 19, 2012 6:56PM
avatar
BUY! BUY! BUY!   YOU CAN STILL MAKE MONEY ON APPLE...
Mar 19, 2012 7:05PM
avatar
AAPL is the new religion.  Have faith and  read the book of Jobs.
Mar 19, 2012 5:04PM
avatar

I'm sorry but the world seems to be tethered to Apple now... They're always on the news regarding their stock/products and even the most die-hard of apple-haters are now succumbing to the revolution... It seems to me that the system is accommodating to the Apple Tech Framework which looks like they're going to be accepted norm just like Exxon back in the day.

 

I guess it can be seen as a great thing to coalesce around but technology of this magnitude has a more significant social reach that's changing so fervently, requiring less and less human "interference/input" that it scares the hell out of me as to what this means for the growing population that wants to contribute something to the world but can't because they're going be outpaced and/or dismissed around every turn.

Mar 20, 2012 1:29PM
avatar

The Apple bagging session is so unfair and personally I believe ill informed. Let me begin with a few other companies one never hears about or bags on for comparison.

 

APPL  $596 556B PE 17

 

NVR $728 3.6B PE 31

Priceline $688 34B PE 33

Bristol $570 56B PE 264

Intuitive $527 21B PE 43

Beam $463 9B PE 549

Chipotle $410 13B PE 60

Washington Post $395 3B PE 26

Panera Bread $160 5B PE 35

Nike $112 51B PE 24

Toyota $84 132B PE 59

Kinder $84 28B PE 341

 

Let’s just chuck these next two great gems in for pure grand numbers sakes and to stir the anti Apple EMO drama of a petty $700 stock ideology.

 

Seaboard $1,950 2.4B PE 7

Berkshire $122,120 202B PE 19

 

The big question you should be asking yourself is this. Why is Apple not sitting at $1,000 right at this moment???

 

The great “fake/over inflated” Apple bubble is worth more than all these companies listed above combined, sorry Warren. So quit worrying about a petty $700 if you didn’t see this coming and missed the boat then get on it before you have to mortgage your house to buy in.

 

 If you don’t know what a PE is you should probably learn.

Mar 19, 2012 7:20PM
avatar
I bought Apple stocks when it was $76.50 per share and everyone around me said, "over priced".  I learn to look at the fundamentals, not listen to the naysayers. Trading only at 14 times earnings, Apple is still a buy. Buy now.........save your tears when it hits $1,000 per share.
Mar 19, 2012 5:50PM
avatar
  1. The stock price is out of line in comparison to the Book Value.
  2. You have 1 good Iphone coming out and then some average products now that the dictator is dead.
Mar 19, 2012 6:12PM
avatar

I admire Apple/ Jobs, but  we all must remember that these big profits are based on  using semi slave / non US workers.  Being a caring human being, born in the USA,  this takes some of the joy out of seeing their success.

 

David 

Report
Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
Categories
100 character limit
Are you sure you want to delete this comment?

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

STOCK SCOUTER

StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

120
120 rated 1
265
265 rated 2
460
460 rated 3
719
719 rated 4
629
629 rated 5
629
629 rated 6
622
622 rated 7
437
437 rated 8
319
319 rated 9
116
116 rated 10
12345678910

Top Picks

SYMBOLNAMERATING
BBBYBED BATH & BEYOND INC10
FOXATWENTY-FIRST CENTURY FOX Inc CLASS A10
TWXTIME WARNER Inc10
COPCONOCOPHILLIPS9
HDHOME DEPOT Inc9
More

VIDEO ON MSN MONEY

ABOUT

Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.