AAPL: Could It Rally To $1,000?

| March 2, 2012 | 0 Comments

Apple (AAPL) investors are giddy with excitement…

Since the start of 2012, the tech juggernaut’s stock has exploded… literally.  In just two short months, AAPL’s surged from $410 to $547- a phenomenal 33% gain.

Why are shares galloping higher?

It’s pretty simple really…

Apple’s products are taking over the world.  I know that’s a pretty big statement… but it’s true.  In my opinion, their products are second to none.  The iPhone, iMac, and iPad are revolutionizing communication and personal computing.

But don’t just take my word for it…

Look at Apple’s recent earnings results for proof of their dominance.

In the final quarter of 2011, Apple captured $46.3 billion worth of revenue… up 64% over Q3.  That’s astounding sequential quarterly growth for a $500 billion market cap company.

And their full year results are just as impressive…

The company’s 2011 revenues came in at a staggering $108 billion… up 65% over 2010’s total take.

Clearly, Apple’s hitting the ball out of the park when it comes to sales.  Red hot demand has their products flying off store shelves.

But more importantly, they’re making sales at hefty price points.  And that’s translating into stellar bottom line growth.  In fact, Apple’s earnings per share went from $15 in 2010 to $28 in 2011.

That’s an 86% year-over-year leap… simply amazing.

And those record earnings kicked off a ‘mega-rally’ in mid-January.

As you can see, investors are grabbing AAPL shares with both hands.  The stock’s literally gone straight up for the past month and a half.

But this brings up a very important question…

With AAPL currently priced at a lofty $545 a share- is it safe for you to buy?  In other words, can the stock continue higher- or will it come crashing back down to earth?

Let’s find out…

Even at today’s sky-high share price, AAPL is still cheap by most fundamental valuation metrics.  As a matter of fact, the shares are trading at a 20% discount to the company’s future growth potential.  What’s more, AAPL’s trading at a mere 15x earnings… that’s well below the average P/E for the Nasdaq Composite Index of 20.4x.

By these standards, the stock is still undervalued.  And that has Wall Street analysts upgrading AAPL’s price target to well over $600 per share.  In fact, some analysts say the stock would be fairly valued at $665.

And listen to this…

Apple co-founder Steve Wozniak believes the shares could run to $1,000.  He says the integrated nature of the company’s products and services give it huge growth potential.

So is it too late to jump on the AAPL train?

Given the cheap valuation and frothy analyst price targets, the shares are obviously a buy at current prices… right?

Hold on a minute…

Sadly, markets don’t run solely on fundamentals.  Nor do they rely on the opinions of a company co-founder (who by his own admission “doesn’t follow stock markets”).

As much as I love the company and their products, I would be very careful buying at current levels.  After all, AAPL is a whopping 38% above its 200-day moving average.

The last time AAPL had a reading like that was in April 2010…

And investors who bought at those highs got hosed… big time.  By the end of May, shares had fallen nearly 25%.  Of course, that big drop was due to the infamous “flash crash”, but you get my point…

AAPL is severely overbought at current levels.

I’d steer clear from buying at these frothy prices.  Yes, the stock still has solid upside potential, but I would wait for a pullback before jumping on board.

After all, no stock can go straight up forever… and AAPL is no exception.

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Category: Stocks

About the Author ()

Justin Bennett is the editor of Commodity ETF Alert, an investment advisory focused on profiting from the ebb and flow of important commodities via ETFs. The commodity veteran and options specialist is also a regular contributor to the Dynamic Wealth Report. Every week, Justin shares his thoughts with our readers on a variety of commodity-related topics. Justin is also a frequent contributor to Commodity Trading Research’s free daily e-letter. And he’s the editor of another highly successful and popular investment advisory, the Options Profit Pipeline.

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