A Textbook Correction

Stock (Symbol) Stock Price

Apple (AAPL)


Data is as of Expected to Report Sector

November 12, 2012

Jan 24


Sharek’s Take
David SharekApple has been selling off hard during the current market correction. Yes, some of the selloff is deserved. AAPL has lowered estimates for two straight quarters. Now profit growth is expected to be flat the next two quarters. The new iPad Mini and iPhone went on sale this quarter, and those catalysts could push profits past expectations. 

At 11 times profits, AAPL is simply too cheap and is setting up for an explosive move higher. I think Apple will go from the mid-$500s to $1000 by next year. The dividend alone will keep the stock from falling – you’re making almost 2% just holding the stock. AAPL is currently building a bottom. Don’t sell, and buy more shares if you’re not loaded up already.
One-Year Chart

This stock has gone from $400 to $700 in a year. Big moves higher often need a correction of 50% of the gain. A 50% giveback gets us to $550 — around where the stock is now. This is textbook. What’s not good is Estimates for the next two quarters show -4% and 1% profit growth coming.

Earnings Table

Last quarter, profits increased 23% on a 27% rise in sales. Hypergrowth was gone 3QtrsAgo.

AAPL beat the street by 27 cents, but this figure was lowered by $2 2QtrsAgo. Net-net is not good.

Annual Profit Estimates declined for the second straight quarter. Its easy to see why momentum has stalled.
Quarterly estimates are poor and declining. This will lower my Fair Value P/E. Hopefully the iPhone 5 and iPad Mini will push profits past estimates.

Fair Value
Even though I’ve taken AAPL’s Fair Value P/E from 35 to 25 and now 20 the past three qtrs, the stock’s still worth $1000.
25 and now 20 the past Ten-Year Chart
This stock’s gone from $100 to $700 pretty much non-stop since the Bull Market began in early 2009, so AAPL was due for a correction.
60% in Power Ranking Bottom Line
Growth Portfolio

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Apple’s correction was inevitable. I’m calling a bottom in this stock and think its going to $1000 in 2013. Not all is great though, profit growth has slowed and AAPL needs to beat the street this quarter and next. I don’t know if it will do so.
AAPL is ranked 2nd in the 16 stock Growth Portfolio and 9 stock Aggressive Growth Portfolio Power Rankings due to its huge upside. I believe the correction is over and Apple is set to go higher.
Aggressive Growth Portfolio

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