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After pullback, even 'value' investors should eye Apple stock - report

post #1 of 77
Thread Starter 
Concerns about the health of Apple Chief Executive Steve Jobs have caused the company's stock to take a hit, even as it reported record earnings last week. The news has left Apple's stock vastly undervalued, according to one Wall Street analyst, who has a price target of $550.

Analyst Brian White with Ticonderoga Securities issued a note to investors on Monday noted that it's a good time to look at AAPL stock, given the pullback in shares last week after the announcement last week that Jobs would take a medical leave of absence. Even without Jobs, White sees Apple's stock rocketing to a new high of $550 in the next 12 months, based on a strong product lineup and growing sales.

"Jobs's medical leave of absence... overshadowed a big December quarter print and March quarter outlook," White wrote. "Although there could be further selling pressure, we believe the risk-reward is becoming so favorable that even value investors should begin buying the stock."

The analyst said he believes Jobs has been building a strong team that will be able to successfully lead Apple into the future. He also believes that were it not for concerns about Jobs' health over the last few years, AAPL stock would never be trading at "such a discount."

"With Apple's hot product portfolio, we expect the company to continue outperforming the tech sector over the next several years," he said.



For fiscal year 2011, Ticonderoga Securities is projecting 56 percent revenue growth and 54 percent earnings per share growth. That growth will be driven by the new CDMA iPhone 4, set to debut on the Verizon network in the U.S. on Feb. 10, followed by anticipated launches of the iPad 2, new MacBook Pros, and the iPhone 5.

In particular, White sees strong sales of the iPhone and iPad driving the much documented "halo effect" that drives new consumers to the Mac platform. White said the Mac appears to be going through a "renaissance," and he expects that performance to only improve in the coming years. He sees Apple selling 16.7 million Macs and 27.4 million iPads in fiscal year 2011.

Ticonderoga Securities' $550 price target is based on an earnings per share estimate plus net cash per share of $63.98. White's numbers equate to a straight price-to-earnings ratio of 22x, which is below the 26x multiple AAPL stock has seen over the last six years.
post #2 of 77
try WOZ
post #3 of 77
I'd like to think he's right, but the numbers don't reflect current realities. He's looking for AAPL to appreciate faster than their EPS (67% vs. 54%). The truth is, over the last several years, the opposite has occurred. Why he thinks multiples will actually increase at this stage is hard to figure.
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post #4 of 77
Quote:
Originally Posted by Dr Millmoss View Post

I'd like to think he's right, but the numbers don't reflect current realities. He's looking for AAPL to appreciate faster than their EPS (67% vs. 54%). The truth is, over the last several years, the opposite has occurred. Why he thinks multiples will actually increase at this stage is hard to figure.

If you don't already, read Asymco - http://www.asymco.com/

Today talking about a hypothetical about acquiring Apple due to its vast undervaluation in terms of trailing earnings. Its not serious about a takeover or going private but does interesting analysis of APPL and its very low valuation vs. comps and outlook.

If you'd taken Apple private 2 years ago, you'd have paid off most (80%) of the debt incurred by now. Today you could do it in 4yrs at current trends. With the lack of a cap on Apple's growth in all product lines (tiny market share today, massive growth in emerging and new APPL markets, brand, satisfaction rates, strategy, etc.) there is little real reason to doubt it would be plausible (if highly improbable).

Anyway - main point - Asymco is brilliant (and filled with some of the best commenters on the Web) - Don't ruin it, y'all ;-)
post #5 of 77
Quote:
Originally Posted by EyeNsteinNo View Post

try WOZ

I think Woz is visionary in a different way -- he looks for things he wants to do/have.

Jobs looks for things he wants that are what others will buy!

I think this goes back to the garage days -- Woz built a computer for the challenge and to have a computer of his own -- Jobs wanted a computer to sell.
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post #6 of 77
Quote:
Originally Posted by Dr Millmoss View Post

I'd like to think he's right, but the numbers don't reflect current realities. He's looking for AAPL to appreciate faster than their EPS (67% vs. 54%). The truth is, over the last several years, the opposite has occurred. Why he thinks multiples will actually increase at this stage is hard to figure.

Apple growth has been rather unusual in that large companies generally hit a plateau and become investment stocks instead of growth stocks. The iPhone turned them into a growth company almost overnight, but that is going to level out pretty soon I would imagine.

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post #7 of 77
Quote:
Originally Posted by EyeNsteinNo View Post

try WOZ

I love WOZ. But he is not the same kind of visionary.

Quote:
Originally Posted by Capnbob View Post

If you don't already, read Asymco - http://www.asymco.com/

Could not recommend more.

Quote:
Originally Posted by mstone View Post

Apple growth has been rather unusual in that large companies generally hit a plateau and become investment stocks instead of growth stocks. The iPhone turned them into a growth company almost overnight, but that is going to level out pretty soon I would imagine.

Why do you suppose? For now it will continue due to additional iPhone penetration and the iPad's potential is hard to even imagine. They may also do something else in years to come which opens them up to whole new worlds of possibility.
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post #8 of 77
Stock price predictions are intuitive hype and their sole point is to generate ad views.
post #9 of 77
Quote:
Originally Posted by Xian Zhu Xuande View Post

Why do you suppose? For now it will continue due to additional iPhone penetration and the iPad's potential is hard to even imagine. They may also do something else in years to come which opens them up to whole new worlds of possibility.

Do you really think the stock will triple again in 3 years? $1000 in 2013? I would not be surprised if they are trading in this same range then. $3-4 hundred.

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post #10 of 77
Quote:
Originally Posted by mstone View Post

Do you really think the stock will triple again in 3 years? $1000 in 2013? I would not be surprised if they are trading in this same range then. $3-4 hundred.

I didn't say that... why would you even assume I meant such a thing?

Predicting that they will trade in the $300-400 range in 2013, however, assumes that they will remain a nervous price-to-earnings ratio and that they will not continue to grow in some noteworthy way (or some combination of these two things), which is highly unlikely. Even if Apple stops innovating at the level they have through recent years they've still got incredible growth potential in the iPad and plenty more to gain in the iPhone (as smartphones become more and more common place). I'm not sure how you can even qualify that vision.

Or that fat dividends are going to come into play through future years, but I don't see that happening either. It doesn't exactly go hand-in-hand with a company focused on growth.
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post #11 of 77
Quote:
Originally Posted by mstone View Post

Do you really think the stock will triple again in 3 years? $1000 in 2013? I would not be surprised if they are trading in this same range then. $3-4 hundred.

If they add 7-10 billion a quarter to their cash on hand, like they just did, yes I do see a $1000 stock in 3 to 4 years allowing adjustments for stock splt(s) if any.

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post #12 of 77
Quote:
Originally Posted by Xian Zhu Xuande View Post

I didn't say that... why would you even assume I meant such a thing?

Predicting that they will trade in the $300-400 range in 2013,

Didn't say you said anything. Didn't predict anything.

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post #13 of 77
Quote:
Originally Posted by EyeNsteinNo View Post

try WOZ

Woz is great, but there would be no Apple if it weren't for Jobs.
post #14 of 77
Apple may not be growing so much in W-Europe and the US, but that's only a small part of the world.

Correct me if I'm wrong but as far as I can see, not one competitor has the vast opportunities in China that Apple has. Google's business model based on ads and consumer data is impossible over there.
post #15 of 77
Quote:
Originally Posted by mstone View Post

Didn't say you said anything. Didn't predict anything.

Your response to me:

Quote:
Originally Posted by mstone View Post

Do you really think the stock will triple again in 3 years? $1000 in 2013?

You can probably expect, and rationally so, that when you throw out something relatively specific like this in response to a quote from another forum member that they are going to assume some kind of association exists.
The true measure of a man is how he treats someone that can do him absolutely no good.
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post #16 of 77
What a stupid thing to say. At a PE of more than 20x Apple needs to keep growing to justify the current pricing. They are a growth stock, not a value stock, even if you believe they will manage to keep growing.
post #17 of 77
Quote:
Originally Posted by Capnbob View Post

If you don't already, read Asymco - http://www.asymco.com/

Today talking about a hypothetical about acquiring Apple due to its vast undervaluation in terms of trailing earnings. Its not serious about a takeover or going private but does interesting analysis of APPL and its very low valuation vs. comps and outlook.

If you'd taken Apple private 2 years ago, you'd have paid off most (80%) of the debt incurred by now. Today you could do it in 4yrs at current trends. With the lack of a cap on Apple's growth in all product lines (tiny market share today, massive growth in emerging and new APPL markets, brand, satisfaction rates, strategy, etc.) there is little real reason to doubt it would be plausible (if highly improbable).

Anyway - main point - Asymco is brilliant (and filled with some of the best commenters on the Web) - Don't ruin it, y'all ;-)

Somebody posted a link to this site a few days ago. Good stuff. Maybe it was you? They were also the ones who came up with the PE compression analysis, which I thought was very interesting if also a little depressing.

Quote:
Originally Posted by mstone View Post

Apple growth has been rather unusual in that large companies generally hit a plateau and become investment stocks instead of growth stocks. The iPhone turned them into a growth company almost overnight, but that is going to level out pretty soon I would imagine.

At some point a company will turn into a value as opposed to a growth story. This is true -- but Apple has defied the usual pattern by keeping up the growth picture even as they've become huge. But the markets have been anticipating the winding down of the growth story for several years now, even in the face of continued astonishing earnings growth. So what you get is a company that must grow earnings by 70% to get stock appreciation of 50%, or in another words, compression of multiples. This leads me to wonder what will happen when earnings growth rates actually do come down to earth, which is bound to occur eventually.

Anyway, this analyst seems to think the opposite trend is at work. It's not clear to me how he gets there.
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post #18 of 77
Quote:
Originally Posted by Capnbob View Post

If you don't already, read Asymco - http://www.asymco.com/

Today talking about a hypothetical about acquiring Apple due to its vast undervaluation in terms of trailing earnings. Its not serious about a takeover or going private but does interesting analysis of APPL and its very low valuation vs. comps and outlook.

If you'd taken Apple private 2 years ago, you'd have paid off most (80%) of the debt incurred by now. Today you could do it in 4yrs at current trends. With the lack of a cap on Apple's growth in all product lines (tiny market share today, massive growth in emerging and new APPL markets, brand, satisfaction rates, strategy, etc.) there is little real reason to doubt it would be plausible (if highly improbable).

Anyway - main point - Asymco is brilliant (and filled with some of the best commenters on the Web) - Don't ruin it, y'all ;-)

NICE info! Its a great time to buy!
post #19 of 77
The traditional/institutional investor surely still sees Apple as being unduly under the influence of one man. While the future of that person is uncertain, the future of the company is uncertain. So while performance is stellar (and has been for 19 quarters?) there is still some discounting of future growth and the resultant P/E compression.

Now, as Followers of the Fruit we know that person will eventually be succeeded - however we also know that Apple has some key personnel in place who are fully imbued with the Wisdom of Jobs and that its unlikely there will be any strategy or focus shifts in the years to come (of course at Apple that actually means total focus shift every five years or so - that's what Apple is so good at). Investors will surely begin to realise that the changing of the guard will not cause the earth to stop rotating and that the largest company on it still has tremendous upside potential.
post #20 of 77
As reflected in the comments here, a lot of people have a very hard time wrapping their brains around a company as big as Apple growing as fast as Apple. That's just not supposed to happen. Thus Apple is consistently undervalued. The upside is that Apple is a buying opportunity.

I interpreted the Asymco article about Apple being a buy-out opportunity as a tongue-in-cheek way to make an argument that the stock is undervalued. Obviously nobody is going to acquire Apple because it is far too big, but the article makes some good points about the degree to which Apple is undervalued.
post #21 of 77
Quote:
Originally Posted by Xian Zhu Xuande View Post

Your response to me:


You can probably expect, and rationally so, that when you throw out something relatively specific like this in response to a quote from another forum member that they are going to assume some kind of association exists.

Understood. I said that the growth should start to level off, you indicated that no, it would continue to grow, I assumed you meant at the current rate, thus the question, $1000?

Just a simple question no argument.

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post #22 of 77
Quote:
Originally Posted by AIaddict View Post

What a stupid thing to say. At a PE of more than 20x Apple needs to keep growing to justify the current pricing. They are a growth stock, not a value stock, even if you believe they will manage to keep growing.

No...they are not over 20x. Maybe you should actually take a minute to check your facts. The fact is that Apple has a lower P/E ratio than Google and a revenue growth rate Y/Y that is 3x as large.
post #23 of 77
Quote:
Originally Posted by Blastdoor View Post

As reflected in the comments here, a lot of people have a very hard time wrapping their brains around a company as big as Apple growing as fast as Apple. That's just not supposed to happen. Thus Apple is consistently undervalued. The upside is that Apple is a buying opportunity.

I interpreted the Asymco article about Apple being a buy-out opportunity as a tongue-in-cheek way to make an argument that the stock is undervalued. Obviously nobody is going to acquire Apple because it is far too big, but the article makes some good points about the degree to which Apple is undervalued.

Another Asymco article (can't find it right now) ponders why Apple is "undervalued" relative to other companies with similar growth rates, not to mention less than companies with lower growth rates (AMZN, anyone?). I put that word in quotes because the market wisdom may not be comforting, but it's the market wisdom, and there ain't no other that matters. Sentiments also may not change, so whether this is a "buying opportunity" depends on forces which are way out of individual investor's control, and may be too deeply engrained to change for the better. Meanwhile, we can dream of AAPL at AMZN's multiples. That would be over $1,000 today. Like I said, we can dream.
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post #24 of 77
Quote:
Originally Posted by mstone View Post

Apple growth has been rather unusual in that large companies generally hit a plateau and become investment stocks instead of growth stocks. The iPhone turned them into a growth company almost overnight, but that is going to level out pretty soon I would imagine.

Not sure I agree on the last point. Apple's share of potential markets (other than iPods) is quite small despite their lion's share of the profits in those markets. The growth is easily 1000 percent in those markets. Then add in what's still under the covers. We know SJ is usually playing with things two or three years out and Ives is probably hard at work designing them. Then add in the potential of such things as the yet to be announced cloud ... and perhaps the new content provider rumors? AAPL has just got started
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post #25 of 77
Quote:
Originally Posted by mstone View Post

Apple growth has been rather unusual in that large companies generally hit a plateau and become investment stocks instead of growth stocks. The iPhone turned them into a growth company almost overnight, but that is going to level out pretty soon I would imagine.

The iPad hasn't even been for sale for a full year yet and it's already outselling Macintoshes. And there are several years worth of rapid growth in that product line alone, let alone continued rapid expansion of iPhone in China, India, and elsewhere. Yes, if Apple doesn't come out with yet another revolutionary product in a few years they might start to plateau, and Jobs' absence would make that more likely. But that's years away.
post #26 of 77
Not sure if it's the invocation of Asymco, or the generally "boring" AAPL related source material but isn't this a nice productive discussion thread, devoid of trolls?
Probably because they have nowhere to go when discussing AAPL financial performance and prospects.
Refreshing - can't last ;-)
post #27 of 77
Quote:
Originally Posted by AIaddict View Post

What a stupid thing to say. At a PE of more than 20x Apple needs to keep growing to justify the current pricing. They are a growth stock, not a value stock, even if you believe they will manage to keep growing.

Apple's trailing P/E is 18.75, and forward P/E is 12.96. That's less than Google, but more than Microsoft. Of course, they've grown much faster than either of those companies, with the lion's share of revenue from product lines that didn't exist a few years ago. (Was it really only 3.5 years ago that the original iPhone came out, and Apple made less per year than they now do per quarter?)
post #28 of 77
Quote:
Originally Posted by mstone View Post

Do you really think the stock will triple again in 3 years? $1000 in 2013? I would not be surprised if they are trading in this same range then. $3-4 hundred.

Do you think it more likely that AAPL adding $18Bn/$4Bn rev/NI this year, more than that next year and probably 2x that in 2013 is likely to result in the same current trading range? That would surely just undervalue it even more than now (which is shockingly cheap for its performance and trends).
There is no indication that growth will slow. Apple is adding a company the size of AkzoNobel, US Bank, Bombardier Aircraft, Kimberly-Clark to its revenue - THIS YEAR!! Additional revenue almost the total size of Google. There are bigger companies (WalMart is $400M revenue per year vs Apple $82Bn) but none can grow at almost 25% per year!! (unless you are an oil company and oil prices rise).
post #29 of 77
Not that it can't be done, but it is very difficult to double a company from $300 billion in market cap to $600 billion. So hard in fact, that to date, it has never been done.
post #30 of 77
Quote:
Originally Posted by Jacksons View Post

Not that it can't be done, but it is very difficult to double a company from $300 billion in market cap to $600 billion. So hard in fact, that to date, it has never been done.

Okay, but you can pull any random number out of thin air and say that it has never been done.

A $798 billion market cap company has never become a $957 billion market cap company.

See? Random numbers. Means the same thing.
post #31 of 77
Quote:
Originally Posted by Jacksons View Post

Not that it can't be done, but it is very difficult to double a company from $300 billion in market cap to $600 billion. So hard in fact, that to date, it has never been done.

True... I've already heard folks talk of Apple being the first trillion dollar company, though.

If Apple doesn't significantly grow its valuation, I suspect it will be for one primary reason: lack of available investment dollars. In essence, they "won" the stock market game. Many of the major funds have maxed out the percent they're allowed to put into one entity with AAPL, so where are the additional purchases going to come from? Maybe Bernake should perform quantitative easing by buying AAPL instead of treasuries?
post #32 of 77
Quote:
Originally Posted by Jacksons View Post

Not that it can't be done, but it is very difficult to double a company from $300 billion in market cap to $600 billion. So hard in fact, that to date, it has never been done.

In 2013 Apple will develop a feature on iPad IV that will increase a woman's bust by 2 sizes and grow hair on men... within one year they will become the world's first and only trillion dollar company...
Hmmmmmm...
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Hmmmmmm...
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post #33 of 77
Quote:
Originally Posted by Tallest Skil View Post

Okay, but you can pull any random number out of thin air and say that it has never been done.

A $798 billion market cap company has never become a $957 billion market cap company.

See? Random numbers. Means the same thing.

The only problem is it's not a random number. It's the market cap of AAPL right now.
post #34 of 77
Quote:
Originally Posted by Jacksons View Post

Not that it can't be done, but it is very difficult to double a company from $300 billion in market cap to $600 billion. So hard in fact, that to date, it has never been done.

Microsoft reached $583B in 1999, so Apple would just be squeaking past them if they doubled. Of course, there's a lot less liquidity in the market right now.
post #35 of 77
Quote:
Originally Posted by Booga View Post

True... I've already heard folks talk of Apple being the first trillion dollar company, though.

If Apple doesn't significantly grow its valuation, I suspect it will be for one primary reason: lack of available investment dollars. In essence, they "won" the stock market game. Many of the major funds have maxed out the percent they're allowed to put into one entity with AAPL, so where are the additional purchases going to come from? Maybe Bernake should perform quantitative easing by buying AAPL instead of treasuries?

Everyone sells Google and MSFT and buys AAPL ... problem solved
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post #36 of 77
Quote:
Originally Posted by island hermit View Post

In 2013 Apple will develop a feature on iPad IV that will increase a woman's bust by 2 sizes and grow hair on men... within one year they will become the world's first and only trillion dollar company...

I have to wait till 2013?
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post #37 of 77
Quote:
Originally Posted by Tallest Skil View Post

Okay, but you can pull any random number out of thin air and say that it has never been done.

A $798 billion market cap company has never become a $957 billion market cap company.

See? Random numbers. Means the same thing.

Those were not random. The company is worth over $300 billion today and these analysts are talking about numbers that would put them in the $600 billion range in a couple of years. The point is rather specific and it is a valid question. Is it harder for big companies to maintain high growth rates? History says definitely yes. Will APPL remain an exception to the norm and for how long? No one knows, but there have been plenty of high flyers that have returned to earth in the past.
post #38 of 77
Quote:
Originally Posted by Booga View Post

If Apple doesn't significantly grow its valuation, I suspect it will be for one primary reason: lack of available investment dollars. In essence, they "won" the stock market game. Many of the major funds have maxed out the percent they're allowed to put into one entity with AAPL, so where are the additional purchases going to come from? Maybe Bernake should perform quantitative easing by buying AAPL instead of treasuries?

I think you are seriously underestimating the size of the investment world by several orders of magnitude. When they hit $100 trillion that might be something to think about.
post #39 of 77
Quote:
Originally Posted by Dr Millmoss View Post

Another Asymco article (can't find it right now) ponders why Apple is "undervalued" relative to other companies with similar growth rates, not to mention less than companies with lower growth rates (AMZN, anyone?). I put that word in quotes because the market wisdom may not be comforting, but it's the market wisdom, and there ain't no other that matters. Sentiments also may not change, so whether this is a "buying opportunity" depends on forces which are way out of individual investor's control, and may be too deeply engrained to change for the better. Meanwhile, we can dream of AAPL at AMZN's multiples. That would be over $1,000 today. Like I said, we can dream.

I don't think that's quite right. If Apple's P/E today were the same as AMZN, then the market would be expecting much higher profit growth from Apple than it currently is, and Apple's stock price would not have much room to rise. In that case, there would not be a very good buying opportunity.

But because Apple's P/E is (if you believe Asymco and similar folks) too low right now, there is a buying opportunity. That doesn't mean that the P/E ratio will rise in the future... more likely it will stay the same or even fall a bit. But if earnings growth (that's the E in P/E) is above expectations, then the P will have to rise in order to keep P/E the same. And when you buy and sell a stock, you pay P, not P/E.
post #40 of 77
Quote:
Originally Posted by EyeNsteinNo View Post

try WOZ

Woz is no visionary. He's a damn superior engineer, and that's just about it.

Thompson
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