Apple Fever: Time To Buy Despite Multi-Year Uptrend?

| About: Apple Inc. (AAPL)

Analyst Brian White of Topeka Capital Markets in Chicago made national news by giving Apple (NASDAQ:AAPL) a price target of $1001 a share, and saying that the entire world has "Apple Fever". This would make the company worth over a trillion dollars.

AAPL vs. S&P 500

However some Chinese factory workers think that this "fever" is causing Apple investors to ignore their severe working conditions in the race to produce cheaper products that sweeten the bottom line. Excessive overtime, low pay and poor working conditions were brought out in hundreds of reports worldwide:

Employees work excessive overtime, in some cases seven days a week, and live in crowded dorms. Some say they stand so long that their legs swell until they can hardly walk. Under-age workers have helped build Apple's products, and the company's suppliers have improperly disposed of hazardous waste and falsified records, according to company reports and advocacy groups that, within China, are often considered reliable, independent monitors.

And this example just released Friday morning about a female factory worker who said "We are Humans - not Machines":

The average monthly wage of China's migrant workers in 2011 rose 21.2 percent from 2010 to 2,049 yuan ($320), with wages higher in the more developed coastal areas like Guangdong. Even so, despite the recent increases, such wages are still many times lower than in Western developed economies.

One Chinese yuan equals 0.1586 US dollars. After such public humiliation the company has finally taken notice. They have promised to shorten hours and limit overtime. This is not all good for some Chinese workers because the shorter hours will make their pay go down even though they received a small pay increase in February. So the company has agreed to significantly raise wages according to a report this morning in the Wall Street Journal:

Apple contractor Hon Hai Precision Industry Co., also known as Foxconn, plans to raise wages for its employees in Taiwan "significantly" to better attract and retain talent, a company spokesman said Thursday.

Foxconn has agreed to ensure that by July 2013 its factories comply with China's legal limits of 40 hours of work per week and no more than 36 hours of overtime per month. That would require cutting by more than half the hours of maximum overtime, which the report pegged at 80 hours a month. The association said the reduction in hours would require Foxconn to recruit tens of thousands of extra workers.

This is not all good news for Apple, and it could cost the company millions in additional payroll expenses. When you add these costs to the price of shipping new phones and tablets to American consumers, analysts are now considering bringing some of the production home with a new "Made in the USA" label:

In a note released earlier this week by Ed Yardeni, chief investment strategist of Yardeni Research, "the winner" in the Foxconn scenario is U.S. manufacturers.

He says the company's pledge to cut down on illegal overtime, improve housing conditions and hire more employees, will likely raise labor costs throughout China, especially if others follow suit, which would increase the attractiveness of operating in the U.S.

AAPL vs. S&P 500

This would be good news for American workers. And there is a growing trend in this country to try to buy more American made products. While the company is facing these labor problems, it also must contend with recent data and international 4G data issues with the new iPad. Since the huge price spike is due to the release of the iPad 3, any problems with it could affect the price.

However, Apple has been on an upward trend for years. I wrote an article recently that shows how investors can pass up on really good stocks because they think they are overpriced. One of the interesting things I found while researching that piece was the fact that investors were "dumping" Apple ten years ago because it fell from $50 a share to $20. There were a few lone bulls that kept it and were trying to defend the $20 price. This is a 60% drop. If that happened today the share price would drop to $248. Yet back then some investors held on, while others sold in fear. And yet a select few were greedy and bought Apple at $20 a share.

With the stock so wildly popular this may be a time to seriously look at your portfolio. Many popular funds own lots of Apple stock. There are still Contrarians out there who are getting scared when everyone else is being greedy. The stock is primed to go to $650 right now, but as with any company there will be peaks and valleys. And even though most analysts think it will continue onward and upward, there will always be dips which allow you to buy. The forward P/E is 11.99 which is enough to give you Apple Fever for sure. Just don't let this fever get so bad that it affects your good judgment.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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