Apple (AAPL) shares have been weak along with the markets in recent days. I view dips in Apple stock to be a buying opportunity and I believe that the stock is not dropping for any significant company specific reason but rather because Apple shares are a source of funds and liquidity (almost like cash). Just as some hedge funds and investors sell gold to raise cash, many are doing the same with Apple. It's smart to use these cash raising dips as a buying opportunity, because the long-term trend for Apple is up, and the stock remains very undervalued.
Serious value is left in the stock which I believe will be unlocked over the next year or two. The company has many billions in cash which appear to be very excessive for any corporate needs. This cash could be used to pay a special dividend to shareholders. A large cash dividend would make the stock less expensive to buy after the payout.
Another catalyst for a higher stock price would be a stock split. The stock is out of reach for smaller investors and options traders. Apple could enact a stock split and that would likely increase investor interest and the price to earnings ratio. Expansion of the PE ratio is a major catalyst for this stock because the stock only trades for about 10 times earnings. With a growth rate near 20% for the next few years, the PE ratio should be about 20 times earnings, which implies a stock price of $800.
Asia and China growth is not priced into the stock. There are only four Apple stores in mainland China and one store in Hong Kong. The expansion potential in China is absolutely enormous, especially when you consider the extremely small footprint Apple has now. See the stores here.
The demand for Apple products is tremendous and when the Apple iPhone 4s was first released in Hong Kong on November 11, the inventory was sold out within three hours that same morning. Some customers waited in line for more than 24 hours to buy the iPhone. I don't know of any other company that can get people lining up to buy products at full price. Read about that here. This proves the potential is enormous and the five stores in China are just the tip of the iceberg in terms of long term potential.
Apple is a leading maker of computers and mobile devices. The 50-day moving average is $395.16 and the 200-day moving average is $363.81. Earnings estimates for AAPL are about $34.52 per share in 2011 and $38.59 for 2012. However, these estimates appear to be too low. The 52-week range is $305.87 to $426.70.
Apple is a great company and will probably continue to be a solid investment for the foreseeable future. I believe Steve Jobs has built unstoppable momentum and put this company on the right track for the foreseeable future. Dips to about $365 look like particularly good buying opportunities since this is right around a key support level (the 200-day moving average).
The data is sourced from Yahoo Finance. The information and data is believed to be accurate, but no guarantees or representations are made. Rougemont is not a registered investment advisor and does not provide specific investment advice. The information contained herein is for informational purposes.
Disclosure: I am long AAPL.