AAPL Blows Past $300 – What’s Next?

3 minute read
| Analysis

What a ride this has been for AAPL. The stock closed at US$316.96 Monday.   We’re getting accustomed to headlines like: “Apple hits all-time high” (again) or “Apple’s best year in a decade” or “Apple stock doubles.”

Financial headlines rarely tell the whole story, however, and when any stock hits the stratosphere this quickly, it makes sense to step back and reassess. Here are some thoughts that current or prospective Apple investors should consider. First, the obvious:

  • Apple’s businesses are indeed firing on all cylinders. The iPhone 11 continues to confound analyst predictions it would fall flat. China iPhone sales are apparently stabilizing, bolstered by talk of cooling trade tensions. iPad and Mac sales are solid. The Apple Watch is becoming commonplace and the AirPods Pro is a genuine hit. Then there’s the fast-growing services business, a dependable revenue-stabilizing force when hardware sales fluctuate.
  • Stock prices are forward-looking indicators. In this respect, there’s enough in the pipeline to also warrant enthusiasm. We’ll likely have two iPhone introductions in 2020: a lower cost model in the spring and 5G models in the fall. Wedbush’s Dan Ives, one of the more thoughtful analysts, predicts an upgrade supercycle for 5G phones, which seems reasonable. So there’s room for growth, and we haven’t even talked about AR or cars.

How Far, How Fast? And Why?

Given all this, it makes sense the stock moved this far this fast, right? Let’s double-click on the rise in AAPL from $142.19 on January 3, 2019 to $310.33 on January 10, 2020.

Apple was trading in the 220 range for much of early fall 2018, but a series of rumors on slowing China sales started appearing and the stock began a long, slow dive. This culminated in Apple’s rare pre-earnings warning on January 2, 2019 that it would not hit its fiscal Q1 earnings target because of China.

Clearly a hit on Apple stock was warranted during this timeframe, but a 35 percent drop from $220 to $142 was way overdone in my opinion. Why did this happen?

Apple is an emotional stock subject to extremes, perhaps more than any other equity. AAPL has a history of excessive selling and buying depending on the current mood. What happened in late 2018 is a classic example.

Based on that, one can infer that the excessive downside move to $142 mirrors the current parabolic rise to $310. If you look at a 2-year chart of AAPL and smooth out these extremes, I submit the downside shouldn’t have gone lower than $180. Applying the same logic to today’s price level, the current upside seems frothy over $285.

So yes, I believe AAPL at $310 is overdone right now, and it’s reasonable to expect some form of pullback before the next analyst targets of $350 are reached. 

Year-long chart of AAPL

Adding to the extremes is the herd mentality of analysts who chase a stock down when negative news occurs, and bid it way up – like now – when things are positive. Uber-bull analyst Gene Munster says AAPL is worth $465 now (if you give it the same multiple Microsoft and Facebook currently enjoy). 

I’m not alone wishing analysts showed more discernment, rather than worrying if their price target was underwater (or their CNBC invites were waning). One relevant example: analysts ignored the following from Apple’s January 2019 warning: “Our installed base of active devices hit a new all-time high—growing by more than 100 million units in 12 months.” This dispelled the shared belief that growth will be difficult for Apple going forward.

(No, I don’t believe we’ll ever see 2003-2012 levels of growth again, but I think the iPhone-fueled Apple ecosystem does have room for slower, steadier growth.) 

The Takeaways

• When you see analysts scrambling to keep up with a rising stock price, take pause and read between the lines. You often can’t depend on many of these guys; they either get it wrong or follow each other. Sometimes, both.

• While the current enthusiasm could certainly continue, I wouldn’t be buying AAPL at $310 here. It’s priced to perfection. Earnings will be announced on January 28, so any hint of negativity could give you a better buy point.

• For long-term investors, nothing would be better than AAPL taking a rest, maybe even a modest pullback, and forming a strong base before the next stair-step upwards.

• I’m long-term bullish, but currently cautious. I think $350 is a forgone conclusion sometime in 2020 or early 2021, and over $400 within three years. But don’t be surprised if it visits $250 on the way there.

Disclosure: Frank and his family own shares in AAPL.


Frank Cioffi is Editor & Publisher of Apple Investor News

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wab95

Frank: Outstanding analysis. Much appreciated. I think that one of the factors leading analysts to get Apple projections wrong is that they continue to make product-specific observations rather than attempting to make a more integrated platform level analysis, and then attempting to assess the relative contribution to that platform from a specific device upgrade. Because of client commitment to that platform, there is inherent stability from an as-yet unspecified fraction of Apple’s installed base. Understanding that base contribution and upgrade habits, as well as what fraction of purchases are new and possibly impermanent, would provide a more realistic assessment of… Read more »

Lee Dronick

Well as we all know correlation is causation and it seems to me that the number of comments started to decline as social media rose. 😀

Lee Dronick

What’s next? Hopefully a stock split.

RonMacGuy

Hi Lee. Been a long time. Nice to see a familiar face still on TMO although it is tough to see on a very busy ad-infected site now! I miss the old days on TMO. Instead of a stock split I’d prefer higher dividends. Stock split would cause more volatility in my opinion by making the average investor want to go in and out of AAPL instead of making people think twice with a $300-$400 price. Ive made a ton of money in AAPL with a buy and hold strategy and I would prefer less volatility and more dividends.

Ron

Lee Dronick

Good point about the volatility.

Yeah, a ton of money. I will be 70 years old this year. I think that I will sell my AAPL shares, buy a ’63 Corvette, a Frank Lloyd Write mansion, more suits and dress shirts, and an iPhone 11; the rest of the money I will spend foolishly.

Social Media has killed the comments on websites like this. I will hold the thin rainbow apple logo line for as long as I can.