Is Apple forming a bottom?

The stock's recent trading performance could signal that the company's high-value reign is coming to an end.

By Benzinga Nov 9, 2012 6:33PM

Image: Arrow Down (ImageSource/PictureQuest)By Matthew Kanterman, Benzinga staff writer

Apple (AAPL) has been the darling of every investor's eye since its meteoric rise began in 2009. From a low of $78.20 hit on Jan. 20, 2009, to a high of $705.07 on Sept. 21, 2012, many investors have made a lot of money just by holding the stock. However, recent performance has been much more lackluster.

Since reaching its all time high and becoming the largest U.S. company ever by market cap, Apple has fallen sharply. The stock is trading near $540 per share, about 24% lower from its intraday high, and the lowest level since the beginning of March. However, there may be some good news for the stock, and investors who missed the earlier rallies might now have a chance to get in.

Looking at the chart below, Apple has had seven significant bottoms over the course of its longer-term uptrend. The first occurred in February 2008, and although that was before the meteoric rise, one would think that without the Great Recession, the rise would have began sooner. The most recent bottom occurred on May 31, when the stock reached $560.99 before rising to all-time highs in September.

One pattern arises when looking at the chart, specifically when compared to analyst price targets. The consensus price target for Apple has grown from $209.29 in November 2007 to $763.63, and one analyst at Topeka Capital Markets even has an astounding $1,111 price target on the stock. What is interesting is the spread between Apple's actual price and its average price target. On the seven occasions that Apple bottomed, the spread between the price target and the actual price averaged 31.2%.

This is intriguing for one reason: Apple is trading 29.75% below its price target. If it were to fall to the average level, the downside risk is only to $525 per share, where there is significant technical support from the long-term trend-line as shown below. 

Of course, the broad market will be driven by headline risk for the next several weeks as the Fiscal Cliff and European woes hang on markets. However, recall in May when stock indexes for falling and Apple bottomed earlier and led the market higher.

Of course, beyond the chart pattern, Apple is only trading at 10.94 times earnings, well below the average of the S&P 500 near 14 times earnings. The company has a staggering $121.2 billion in cash on its balance sheet, or $128.89 per share. Backing this large cash position out of the stock price, Apple is only trading at 8.25 times next year's earnings.

Stock chart

Disclosure: Author is long Apple

More from Benzinga

Nov 10, 2012 5:19PM
$10 rabbit ears will get you teh best pictuer on the planet, if you live in a major city like Houston. Given that there is little on TV worth watching why pay a bundle for lower qulaity TV. My girlfriend pays $71 a month for basic cable. She only watches channel 11 a broadcast station. That $840 a year is post income tax dollars versus my zero dollars for the same thing. She won't switch becasue she would have to buy a new tv to repalce her analog 19 TV. for the annual cost of cable she could buy a nice size new TV or a new TV with twice as large a screen for half of one years cable cost. Logic seems to be an evasive process for some folks. 
Nov 10, 2012 1:22AM

So appl tv will probably have 3d and internet.  I just bought a tv that has that and it costs less than an ipod.  So mini ipad smaller than an ipad, but with less features no wireless connection, android devices costing 100 or less have wireless and apps.


It appears aapls new ideas are retro.





Nov 10, 2012 12:40AM
BEST smoking deal you can get is verizon phone,internet and direct tv bundled.Was paying a 100 bucks a month for dishnetwork alone,now bundled phone,internet and direct with more channels than dish were only paying a 100 a month.
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