Disclosure: Author is long shares of Apple
) has been the darling stock of every investor's eye since its
meteoric rise began in 2009. From a low of $78.20 hit on January
20, 2009 to a high of $705.07 on September 21, 2012, many
investors have made a lot of money just by holding the stock.
However, recent performance has been much more lackluster.
Since reaching its all time high and becoming the largest U.S.
company ever by market cap, Apple has fallen sharply. Currently,
the stock is trading near $540 per share, about 24 percent lower
from its intraday high, and the lowest level since the beginning
of March. However, there may be some good news for the stock and
investors who missed the earlier rallies might now have a chance
to get in.
Looking at the chart below, Apple has had seven significant
bottoms over the course of its longer-term uptrend. The first
occurred in February 2008, and although that was before the
meteoric rise, one would think that without the Great Recession,
the rise would have began sooner. The most recent bottom occurred
on May 31, when the stock reached $560.99 before rising to
all-time highs in September.
One pattern arises when looking at the chart, specifically
when compared to analyst price targets. The consensus price
target for Apple has grown from $209.29 in November 2007 to
$763.63 currently, and one analyst at Topeka Capital Markets even
has an astounding $1,111 price target on the stock. What is
interesting is the spread between Apple's actual price and its
average price target. On the seven occasions that Apple bottomed,
the spread between the price target and the actual price averaged
This is intriguing for one reason: Apple is currently trading
29.75 percent below its price target. If it were to fall to the
average level, the downside risk is only to $525 per share, where
there is significant technical support from the long-term
trend-line as shown below. Of course, the broad market will be
driven by headline risk for the next several weeks as the Fiscal
Cliff and European woes hang on markets. However, recall in May
when stock indexes for falling and Apple bottomed earlier and led
the market higher.
Of course, beyond the chart pattern, Apple is only trading at
10.94 times earnings, well below the average of the S&P 500
near 14 times earnings. The company has a staggering $121,251
million in cash and cash equivalents on its balance sheet, or
$128.89 per share. Backing this large cash position out of the
stock price, Apple is only trading at 8.25 times next year's
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