Tuesday, January 15, 2013

Time to Buy Apple Shares?

Apple is a great company.

Its stock has been a great performer the past few years as well.

Now its stock price has hit a pothole and dropped precipitously recently.

This brings to mind legendary and highly successful advice from Warren Buffett. Buy the shares of great companies when other people are afraid and sell when they're exuberant.

Mr. Market, as Buffett refers to stock prices, is like a baseball pitcher throwing strikes and balls all day long and always offering to buy or sell shares at any given price, and Apple is no exception. As the batter, we can decide when to swing the bat. Meanwhile, we wait for the right pitch.

While I have no idea what Apple shares will sell for the next few days (probably lower than today), weeks or months (probably higher than today), my view is that selling at somewhere between $700 and $1,000 per share may well be in the cards during the next several years.

Today it's being offered for sale by Mr. Market at ~$487 per share. It may be a good time to take a swing at the pitch.

Apple shares still below biggest target cuts says this:

"Despite its still-highly favored status on Wall Street, Apple Inc. /quotes/zigman/68270/quotes/nls/aaplAAPL has seen a large number of brokers cut their price targets on the iPhone maker over the last few months, though the stock’s precipitous fall in that time has put the shares well below even the most diminished views.

The most notable change came Tuesday morning, when Nomura analyst Stuart Jeffrey cut his price target on the stock by 20% to $530. He based his move on projections for “weaker-than-expected” sales of the iPhone 5, and added that he believes that gross margins and average selling prices for the iPhone “are unsustainably high.” The note caused even more selling on the already battered stock, which was down 3% to $486.61 at last check.

That was the largest percentage cut to a broker’s price target that Apple’s stock has seen since the company issued its last earnings report in October. That report included a high-profile earnings miss from a company accustomed to blowing away the Street’s targets. The report also triggered a wave of price target reductions as analysts tempered their profit near-term targets, given the launch of so many new products. At least 26 brokers have cut their price targets on Apple since that report, according to data from Thomson Reuters.

However, Apple’s shares have shed more than one-quarter of their value since late September, which has put the stock well below even the most reduced targets. Only one broker has a target price below the stock’s current value of $486.64, the rest are above Nomura’s $530 view. The current median target is $745, and 13 brokers maintain targets above the $800 – with one reaching $1,111.

Peter Misek of Jefferies, who has an $800 price target on the stock, remains upbeat. “We think the stock will rise on the strong CQ4 results, which should dissipate concerns of dramatically slowing demand for Apple products."

Summing Up

And that's what's going on with Apple's share price today.

Just wanted to share the news with you. If nothing else, write yourself a note and recheck its price periodically, beginning a year from now.

At that point in time, you may like or dislike what you see, depending on what you decide to do or not do, as well as what price Apple's shares are selling for at that time.

Time will tell, but for long term investors the risk to reward factor for Apple looks better than it's looked for quite some time.

Thanks. Bob.

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