Heard It Here First: Apple To $833… Err, I Mean $119

Posted: May 30, 2014 in Apple, Apple TV, Business, Farros, iOS, Royal, Technology and Business

Hard not to get excited by all the Apple activity.  Very cool that one of the very oldest tech companies is still one of the most relevant.

Problem has been that Apple has been in the penalty box for the last few years… people have been waiting and waiting and waiting for the “next big thing.”

It’s Apple’s fault.  They’ve certainly teased the market… Tim Cook hasn’t been shy about saying how excited he is about R&D quarter after quarter after quarter.

Somehow it now feels a bit different.  Other key execs are now very publicly making rather bold statements:

Later this year, we’ve got the best product pipeline that I’ve seen in my 25 years at Apple.”  

— Eddy Cue, Apple’s senior vice president of internet software and service, at a tech conference on Wednesday

I’m not crazy that he qualified the statement with “Later this year”… something almost everyone reporting on the statement seemed to gloss over.  But I still think it’s a significant statement… and significant that there is finally some kind of timeframe associated with whatever the heck they’ve been working on for the last four years since the introduction of their last great product the iPad.

What might he mean?

The easy guess is the iPhone 6.  That upgrade cycle — probably the biggest in smart phone history — could easily take Apple to $700.

“Pipeline” is usually plural, though, meaning we should see other announcements before year’s end.

Tons of rehashed speculation about these — a payment system (big), better iCloud (bigger), and an iWatch (not so big) — but my personal favorite is that Apple really, truly, finally releases an iOS development platform for “Everything Not Mobile”… also being referred to today as the “Internet of Things.”  i.e., your family big screen TV — decidedly not a mobile device — will be the center of your home’s universe, including, of course, completely reinventing the home entertainment experience.  (Here and here.  And you thought Apple was only building a cool-looking TV. <smile>)

That kind of pipeline could make AAPL skip all the way up to $833.

Normally I would say a 200 point jump from today’s closing of 633 is unrealistic in any kind of short or medium-term timeframe.

But, here’s the thing about any big stock split — like the very one they’re doing next week that will most likely take the stock to $90 — $90 to $119 doesn’t seem like such a big moveon the contrary, that seems rather normal for a company on the move…

… which is why I think AAPL will surprise everyone, even the most hardcore fanboys out there… and especially those folks that like the number “33.” <g>

 

P.S.  My $833 number isn’t just simple psychology… there’s math behind it, too.

Measured by P/E, Apple has famously been trading at about a third discount to the average S&P stock for a couple years now — even below its own perennial average — that penalty box mentioned above.

Which I have to say is weird.  Even at its low point, Apple continued to be the strongest brand — and one of the most phenomenal cash-generating machines — in the world.  Surely that merits at least “average”?  Average gets AAPL into the 800’s.

But maybe more important, because of its massively spectacular run between 2004 and 2012 — something like a 50x return (!) — everyone on the planet ended up owning AAPL for a long time.

Two things were apparent:  (1) If everyone already owned Apple, no one was left to buy Apple… as in bid up the price.  And (2) people were naturally itching to take profits.

Given those factors, you only need a spark to send a stock in the opposite direction.  That spark — JOLT — came as Android proved to be a real competitor… and when Apple’s “next big thing” always seemed to be “next quarter”… quarter after quarter after quarter.

The confluence of all of those things meant that people had enough and bailed… resulting in an almost 50% decline in stock price… a thorough thrashing in 2012 and 2013.

Which gets me to my point:  There are now lots of buyers on the sidelines… and the stock will doubtlessly run as everyone ventures back in.  The fact that the stock will be “cheaper” after the split means even the little guy will feel like they can participate, too.

Indeed, momentum is a powerful force… both in nature and on Wall Street.

Which leads me to an investment philosophy I have that applies to this situation:  The pendulum always swings too far.  As I believe Apple stock will in this situation, too.

Advertisements

Comments are closed.