As Apple (NASDAQ:AAPL) continues to make new 52-week highs and noted analysts are raising their price targets, investors need to consider how much room the stock still has to run higher. As launch dates for the iPhone 6, the next generation of iPads, and the potential introduction of the iWatch begin to firm up, the typical Apple buzz is already beginning. Couple new device news with a solid earning call last week, and the stock looks poised to move significantly higher. Given Apple's typical pattern surrounding the release of each major iPhone redesign, establishing a position in the stock, especially at sub-$100 levels, should be profitable.
The Apple Pattern
Apple shares have typically performed strongly heading into the launch of each progressive generation of the iPhone, particularly the fully redesigned - the iPhone 4 and 5, as opposed to the iPhone 4S and 5S. The company has a demonstrated knack for getting consumers jazzed about the new devices and using that hype to generate significant sales figures. These figures have, in turn, driven the stock increasingly higher around each launch. The obvious exception was the weak fourth quarter after the actual release of the Apple iPhone 4 in 2012; this was driven more by the fact that the stock had been priced for perfection, rather than lagging sales figures.
Thus far this year, Apple shares have turned in very solid performance and remained a favorite amongst institutional investors. For example, hedge fund manager David Einhorn of Greenlight Capital recently praised the stock and the sector as a whole:
"We believe that stocks including Apple, Lam Research, Marvell Technology and Micron Technology have strong prospects [and] are undervalued."
This is a reversal of comments from Einhorn and other fund managers earlier this year, suggesting that a bubble could be forming in tech.
Earnings a la Apple
As is too frequently the case with bellwethers, Apple's solid third-quarter results were overshadowed by consensus estimates. The company reported earnings of $1.28 per share on revenues of $37.4 billion, but the street had been looking for $38 billion. Similarly, Apple sold 35.2 million iPhones, falling short of the 36 million that were expected. This is not to suggest that analyst estimates should be completely overlooked, but selling enough iPhones to equate to more than 10% of all people living in the U.S. seems to exceed "unspectacular," which is how the number was described.
Lagging iPad sales were of some concern, but as the tablet market is continually redefined - everything from emerging product lifecycle to specific uses - these numbers are not terribly surprising. With Microsoft (NASDAQ:MSFT) bringing the Surface Pro 3 to market - the first in the series that critics believe may legitimately replace your laptop - the iPad numbers over the next few quarters should be telling. The other side of this is the recently announced deal between Apple and IBM Corp. (NYSE:IBM), which may give Apple a way to reach enterprise customers like never before. Ultimately, the upside potential is greater than the downside risk, because Apple's penetration is not particularly strong to begin with.
Is it Time to Buy?
Apple has been on an impressive run, and it would be easy to see room for a pullback or outright correction. I, however, am a buyer, especially below $100, because the company seems to be positioned to push significantly higher. If the iPhone 6 meets some of the nagging requests of consumers (like a larger screen at last), which it almost certainly will, sales could be huge. Additionally, given the fact that all of the major wireless carriers released their "early upgrade" plans early this year, the first quarter of 2015 could see a second wave of buying on an unprecedented level. If huge iPhone sales can be coupled with the successful launch of a successful Apple wearable - the iWatch - the upside for the stock is solid. With $100 being important as a psychological barrier, nabbing shares as near to $100 should offer the best potential.