My Mea Culpa With Apple

| About: Apple Inc. (AAPL)

Even if you don't own shares of Apple (AAPL), you're probably well aware that a couple of sell side analysts put a $1,000 price tag on the stock last week. This price appreciation isn't projected to hit that mark until 2014, but it's still a sizable gain from the current tape of $633. You're talking about roughly a 75%-80% profit in a little over two years if these expectations are met. Apple also pays a 1.7% dividend now, which is much, much better than a Certificate of Deposit at your local bank.

I'm a subscriber to ValueLine and they've been on the Apple bandwagon for years. In fact, ValueLine was early to the game in calling for a $1,000 price target at the beginning of the year. Recently, their share projections for the next 3-5 years for the company increased to $1070 for the low side and $1450 to the higher end of the range. ValueLine analyst Justin Hellman sees no reason to sell the stock and believes the momentum will persist through this year and into 2013.

My first article about Apple was in early January of 2011. The stock was selling for about $335 and I believed the law of large numbers had caught up to it just like Cisco (CSCO) in 1999. As you may surmise, I was wrong. The stock has done nothing but leave trails of smoke behind it and catapulted itself to investing royalty for a second time in its long and storied career. Apple continues to hit tape measure shots to the upper deck during earnings season and if sales of their products continue to simmer at a steady boil, they just may hit that trillion dollar valuation in the next few years.

The company is reasonably valued with an impressive growth story still in front of them. Yahoo Finance has an average compound annual growth rate estimate of 19% for the next 5 years. In addition, the P/E Ratio is about 18. You've got to like those kind of numbers. That said, although I believe the company is a wrecking machine and you probably shouldn't cash in your winning tickets if you already own it, I personally wouldn't buy Apple at this level. If it falls back to the $500 area, I would consider it, but not until.

The primary reason I hesitate to put money to work in Apple right now is the most obvious; it's come too far, too fast. It crossed the tape at $410 in early January and has had a 30% move in four short months. Going back to mid 2011, the stock has increased 100% from a low of $310 of last year. My take is that stocks revert to the mean and if I am patient, I may catch it on a dip. Apple has a 50 Day moving average of $547. If we get a healthy 5%-10% correction in the market, it can decrease $60-$70 in a heartbeat.

I'm also not buying the Apple TV story yet which has gotten Apple enthusiasts extremely excited. I own Apple handheld products, so I'm very confident that whatever Steve Jobs concocted to to help his company commandeer the living room will be successful. I'm just not convinced that there will be that large of an uptake in the product to make a big impact on earnings for a few more years. iPhone and iPad sales? Sure. iTV, not for at least a few more years.

You'll notice the picture to the left of Bill Gates on the cover of Wired (courtesy of Conde Nast), lounging in the pool back in Microsoft's (MSFT) heyday. In the last technology boom in the 1990s, Microsoft was supposed to take over the world, too. They were expected to engulf and devour the movie and broadcast business. MSNBC stands for Microsoft/NBC. It never really panned out and the stock has been a dog, capital D, for the past ten years (although it's had a nice pop since January). I'm very cautious when I hear all of the hype about total global domination. I look forward to the prospect of possibly purchasing an Apple television, but not for another five years, after first mover adapters have pushed prices down.

That said, I've fully bought in to the whole wireless broadband revolution that Apple helped create. Investing in select companies that fuel the wireless bandwidth engine may be a way to kick-start your portfolio and lead you down a pathway to wealth. I've taken stakes in companies like Synchronoss Technologies (SNCR), Velti (VELT) and Glu Mobile (GLUU), among others, to take advantage of the halo effect from industry leaders like Apple and Google (GOOG) with their android operating system.

The floodgates have flown open and mobile subscribers worldwide are scrambling to upgrade their feature phones to the more robust smartphones. My impression is that we are in the very early stages globally with the mobile Internet and handheld application phenomenon. The next 3-5 years could prove to be very interesting as consumers from all levels of economic and social strata migrate to these utilitarian devices. My preference is to invest in small promising companies that are platform agnostic to take advantage of this growth no matter what brand is in favor.

If you go back to the Personal Computer revolution in the 1980s, products like Lotus 123, Peachtree Software, dBase and Hayes Modems became common buzzwords in the corporate workplace. These long forgotten companies made significant money to early investors, at least the ones that went public. You could have made money in Apple and Microsoft, too, but how much appreciation do you really expect in their shares in 2012? One hundred percent? That's quite possible, but nowhere near the multiples you may get from these smaller companies.

If you own shares of Apple, you've got to love the fact that they are currently number one on the Investor's Business Daily top 50 stock list. This is a momentum based listing and it signals that the wind is at their back. From a technical aspect, the equity is 48% past the $428 buy point in cup with handle with no sell signals. From a value perspective, IBD states a 68% annual earnings per share growth rate with that meager P/E Ratio of 18. This P/E Ratio of 18 is well below their historical norm in the 20's. If the market takes off again, the stock still has some room to run.

Disclosure: I am long SNCR, VELT, GLUU.

About this article:

Tagged: , , , Personal Computers
Want to share your opinion on this article? Add a comment.
Disagree with this article? .
To report a factual error in this article, click here