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Will Apple Inc.’s (NASDAQ:AAPL) Stock Reach $1,000 or Will Apple Fall From The Tree?

April 11th, 2012

John Nyaradi: Earnings season starts this week and will Apple Inc. be able to carry the S&P 500 higher or will the high flying company fall from the tree?

With earnings season approaching and a possible market correction on the horizon, one question investors may have is whether S&P 500 company earnings will be strong enough to continue the bull market we have seen so far in 2012, resulting in an approximate 12% increase in the S&P 500 since the beginning of the year.  Seven of the nine main sectors of the S&P 500 have seen increases, with only the Energy and Utilities sectors holding the S&P 500 from experiencing more consistent gains. [Related: How To Earn A 9.25% Gain In 30 Days While Waiting For Apple’s Dividend

One large S&P 500 company earnings factor to keep an eye on in regards to overall S&P 500 performance is the performance of Apple Inc. (NASDAQ:AAPL).  In fact, without Apple’s presence in the S&P 500 Index, the projected earnings growth rate for the Index would be -1.6%.  Apple is expected to be the largest contributor to the S&P 500′s earnings growth for Q1 2012 and the index might need an apple a day as so far sixty-six companies have issued negative Earnings Per Share (EPS guidance) for Q1 2012, down from the 82 companies that issued negative EPS guidance for Q4 2011.

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Apple will report earnings on April 24th and no doubt that report and call will be the most widely watched of the current earnings season. [Related: Apple Inc.’s Stock Is Entering A Euphoric “Bubble” Stage; A Bad Sign For The Markets?]

In short, Apple’s stock has helped to bolster our current bull market because the company’s market-cap of over $575 billion enables the company to push the market along with it via momentum.  As long as Apple’s stock can continue to rise, there is no reason why it can’t continue to push the S&P 500 (and the stock market as a whole) to higher levels.  The concern is whether there will be a pullback on Apple stock at some point which is certainly a possibility, as virtually every stock experiences pullbacks as investors seize profits.

Do not underestimate Apple just yet, however, as the company has established a business model that continues to develop new generations of high-demand, new-tech products.  This business model has proven successful, especially in the last two main products released by Apple, the iPhone 4S and “the new iPad.”  In fact, there are already rumors spreading about a possible new iPhone 5 and an even newer version of the iPad 3.

Combine these popular products with Apple’s impressive line of computers, iPods, iTunes, and the presumption (speculation?) that Apple’s stock can continue climbing over the long term, and you have a strong case for a strong S&P, even if there is an occasional minor pullback or two in the short-term.  This is why a few analysts have already projected Apple’s stock to reach $1,000 at some point in the not-too-distant future.  These $1000-per-share forecasts help to bolster the case that the S&P 500, as well as the stock market, can both continue this bullish run for the long term.  [Related: 7 Reasons Apple’s Stock Could Be The Short Of A Lifetime]

As long as no major catastrophes or surprises occur, it is likely that S&P 500 companies’ earnings can continue to rise over the long term.  However, over the short term, it appears that earnings for this quarter are going to slow due to headwinds from China, Europe, and a slowdown in US growth.

Some ETFs to watch for earnings season include the SPDR S&P 500 ETF (NYSEARCA:SPY) and the Technology SPDR ETF (NYSEARCA:XLK), Vanguard Information Technology (NYSEARCA:VGT) along with the PowerShares QQQ Trust Series 1 ETF (NASDAQ:QQQ); all of these ETFs will likely be affected by Apple performance and the overall earnings season. [Related: Does Google’s Android Have Any Chance Against Apple Inc.’s iPhone?]

Bottom line: With employment growth slowing, earnings growth apparently slowing, problems in Europe and seasonality working against higher prices, the most likely scenario is for a sideways to downwards market in response to slowing Second Quarter earnings on the S&P 500 (NYSEARCA:SPY) and in the Tech Sector (NYSEARCA:XLK).  The slowdown could become an outright tumble if Apple (NASDAQ:AAPL) should fall from the tree.

Written By John Nyaradi Publisher of Wall Street Sector Selector

Disclaimer:  Wall Street Sector Selector actively trades a wide range of exchange traded funds (ETFs) and positions can change at any time.

John Nyaradi is Publisher of Wall Street Sector Selector and Senior Vice President of Private Client Services for ProfitScore Capital Management, Inc.  Get a free Special Report from Wall Street Sector Selector.


NASDAQ:QQQ, NYSE:VGT, NYSE:XLF


 

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  1. Ade
    April 14th, 2012 at 00:02 | #1

    Apple stock price is worth every penny, That’s if you are smoking the right stuff.

    The insanity of the speculative markets continue to be cheered by deceptive advocates who have made fortune but don’t acknowledge the actually cost to the United States future which is likely to see a declining standards of living in the years ahead . This is all done for a cause, so that a handful of people can make their billions by manipulating the stock market to show an illusion of prosperity returning to the economy.

    The analysts who are projecting Apple stock to reach $1000 a share are the likely the same expletive, which made though wonderful forecasts about similar bubble stocks during dot com bust.

    I would have like to use the actual word which best describes these analysts, but I probably would be censored.

    The rapid rise in apple stock price has nothing to do with current earnings but is based solely on speculative growth with GREAT EXPECTATIONS that sales growth will increase by 20% annually or more for the next five years. This is why the cheerleaders believes apples stock is significantly undervalued even though it has increased by over 250% in the less than 2 years.

    If apple stock price continues to increase, don’t jump for joy. The continue increase is nothing but herd investing which has caused apple’s stock to increase by 56 % since the beginning of the year.
    It was not long ago the herd believed that house prices could never go down but would continue to increase rapidly year over year. Just as the apple cheerleaders believe its stock price cannot decline, but will continue to increase. As long as the herd believes the fairytales being promoted in regards to Apple’s sales growth its stock price will increase. As soon is its earnings and net income do not meet the ridiculous expectations it will drop.

    FACT:
    Apples 2011 net income is reported to be 26 billion on revenues of 128 billion. This is a 185% increase from Apple’s 2010 net income which was 14 billion. A good majority of Apple earnings came in the 4th quarter, I.E holiday season when it s gross earnings increased by about 18 billion from the previous quarters to over 46 billion. Unbelievable wouldn’t you agree?

    The herd believes that Apple can expand it sales by 20% a year for the next 5 years is a deception. To accomplish this apple sales will have to increase to 153 billion in 2012 and by 2016 and have annual sales of 318 billion.

    I don’t know how the herd can believe this fabrication.

    Based on last year revenue and the prediction that sale will increase by of 20%, Apple’s net income will not exceed 40 billion in 2012.

    Apple’s net profit is approximately 20% based on 2011 earnings and net income.
    Sales – cost of goods sold / sales = net profit
    128 billion – 102 billion / 128 billion ≈ 20 %

    2012 revenue if sales increases by a 20%.
    128 billion X 1.20% ≈ 153 billion

    2012 estimated Net Income from gross sales.

    153 X 20% ≈ 31 billion

  2. ade
    April 13th, 2012 at 23:57 | #2

    Apple stock price is worth every penny, That’s if you are smoking the right stuff.

    The insanity of the speculative markets continue to be cheered by deceptive advocates who have made fortune but don’t acknowledge the actually cost to the United States future which is likely to see a declining standards of living in the years ahead . This is all done for a cause, so that a handful of people can make their billions by manipulating the stock market to show an illusion of prosperity returning to the economy.

    The analysts who are projecting Apple stock to reach $1000 a share are the likely the same expletive, which made though wonderful forecasts about similar bubble stocks during dot com bust.

    I would have like to use the actual word which best describes these analysts, but I probably would be censored.

    The rapid rise in apple stock price has nothing to do with current earnings but is based solely on speculative growth with GREAT EXPECTATIONS that sales growth will increase by 20% annually or more for the next five years. This is why the cheerleaders believes apples stock is significantly undervalued even though it has increased by over 250% in the less than 2 years.

    If apple stock price continues to increase, don’t jump for joy. The continue increase is nothing but herd investing which has caused apple’s stock to increase by 56 % since the beginning of the year.
    It was not long ago the herd believed that house prices could never go down but would continue to increase rapidly year over year. Just as the apple cheerleaders believe its stock price cannot decline, but will continue to increase. As long as the herd believes the fairytales being promoted in regards to Apple’s sales growth its stock price will increase. As soon is its earnings and net income do not meet the ridiculous expectations it will drop.

    FACT:

    Apples 2011 net income is reported to be 26 billion on revenues of 128 billion. This is a 185% increase from Apple’s 2010 net income which was 14 billion. A good majority of Apple earnings came in the 4th quarter, I.E holiday season when it s gross earnings increased by about 18 billion from the previous quarters to over 46 billion. Unbelievable wouldn’t you agree?
    The herd believes that Apple can expand it sales by 20% a year for the next 5 years is a deception. To accomplish this apple sales will have to increase to 153 billion in 2012 and by 2016 and have annual sales of 318 billion.
    I don’t know how the herd can believe this fabrication. I guess they are smoking some good dope.

    Based on last year revenue and the prediction that sale will increase by of 20%, Apple’s net income will not exceed 40 billion in 2012. Apple’s net profit is approximately 20% based on 2011 earnings and net income.

    Sales – cost of goods sold / sales = net profit
    128 billion – 102 billion / 128 billion ≈ 20 %

    2012 revenue if sales increases by a 20%.
    128 billion X 1.20% ≈ 153 billion

    2012 estimated Net Income from gross sales.
    153 X 20% ≈ 31 billion

    Every additional billion of net income will be more difficult to earn, due to its enormous size which is 1000 million. If the analyst’s 2012 forecast are correct Apple’s revenue will increase by 25 billion or 25000 million dollars. This amount of money buys quite a few Ipads, downloads and other apple products. How many more apple products can the market absorb?

    By comparison NASA Space Shuttle operating budget in it last year was 3 billion. I provide this as an illustration, to give the cheerleaders a clued about the staggering amount of income apple currently has.
    Apples net income from the past five years, from 2007 to 2011 is approximately 56.5 billion. A major jump in sale and income came in 2010 to 2011 when its net income increased by 11.91 billion.
    What is never asked is how a company with a net income of 26 billion in 2011 can have achieved a market capitalization of 590 billion. I realize there is a difference between market capitalization and the use of a capitalization rate to determine value. However, market capitalization is a qualitative value not easily determine as it represents the public consensus on the value of a company’s equity and in Apple’s case it has been inflated.
    The use of a capitalization is a quantitative method to determine value from quantifiable data such as income and expenses.
    It is relatively easy to determine Apple’s value utilizing its net income and a capitalization rate. Apple’s average net income over the last 5 years is 11.3 billion. This income average would typically be utilized to estimate a value.
    But let’s assume an unlikely scenario that Apple net income is 40 billion in 2012.
    If a typical capitalization of 10% is applied to this net income, a value for the company can be estimated:

    40 billion / 10% = 400 billion.
    But to entertain all the promoter of apple stock let utilize a capitalization rate of 6%. The lower the capitalization rate the less risk involved with the investment, consequently a higher value.

    40 billion / 6% = 666 billion.
    I did not calculate that number on purpose. However it is interesting. Maybe, apple stock price is associated with one of the deadly sins – GREED. It certainly appears to be.
    I acknowledge the capitalization rates are assumption, but historically a 10% rate is typically used by investors. By this analysis Apple’s market capitalization appear to be in excess by at least 265 billion.
    Now let get to the 1000 dollar a share price which every analysts and his brother are saying Apple’s stock will achieve in a relatively short time. This will mean that Apple as a company is worth a Trillion dollars with a the capital recovery of more than 25 years on the money invested as Apple’s net income will likely stagnate at 40 billion, due to the enormity of that sum.

    Apple’s income growth is beginning to slow, but this does not stop the analysts from developing deceptive forecast about Apples future growth citing its relatively low market share of worldwide computer, Smartphone and Tablet sales.
    One must ask who is paying these analysts for these deceptive forecasts. Could it be the herd on Wall Street which severely damaged the US Economy by all the financial instruments which were developed, supposably to limit risk, but were merely another device which allows them to hedge their bets? .
    It’s not surprising that 70% of Apple’s stock is owned by institutional investors. Apple as company is a great candidate to collude on, due to its incredible growth rate over the last 5 years and the difficulty in evaluating its most important characteristic which is the marketing of its products.
    Marketing is an intangible asset, akin to Goodwill which is very difficult to evaluate There is a reason, Apple’s sales are less than its competitor which is due to their considerably higher cost, which in many cases are functionally no better than their competitors. But if you listen to the experts, it’s like Apple has no competitors or competing products which the consumer can choose, but can only buy Apple products.
    I have several apple products, including an ipad which is nothing more than an oversize iphone. The Ipad functionality and interface are significantly inferior to a lap top. The appeal must be to the herd, which is high on something and gives them a convenient place to watch video as its utility is more like a toy than a useful device.
    If Apple wishes to capture more market share of sales it will require developing additional products with lower prices as the more affluent markets have been saturated, leaving the less capable markets the task of buying all though millions products which are forecast to be manufactured and sold by apple in the coming years.
    Just as computers, big screen TVs and many other electronic devices have been commoditized, so will apple products if they wish to generate more sales. This directly relates to Apple’s value and allege income growth potential. Guess what else is affected by a lower sale price? That’s right earnings and net income will be lower, which is another reason Apple income will stagnate.
    I could go on about why apple stock is a bubble, but it would be in vain as the herd does not wish to sober up as the dope Wall Street is selling is that good. Maybe I need a toke.

  3. April 11th, 2012 at 14:19 | #3

    Apple’s P/E is at 17. That means its toped out for now. It depends on sales of its future products if it pushes further up. It has 2 great products lines up this year iPhone 5 and Apple TV or iTV, what ever it will be called. If earnings come in over 40 a share the stock will go up.

  4. Brian
    April 11th, 2012 at 14:13 | #4

    Apple will likely exceed it’s revenue and earnings expectations for Q1 2012. Apple’s products are awesome, and will continue to be in the foreseeable future.

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