Thursday August 23, 2012
by Geoffrey Seiler, editor BullMarket.com
Recommended List selection Apple (AAPL) received a rare downgrade after the company moved to a price that made it the highest market cap of all-time.
Oracle Investment analyst Laurence Isaac Balter lowered his rating to "hold" and cut his target on the stock from $670 to $650. Nevertheless, we continue to rate the stock a buy.
Balter wrote, "The hype concerns us, as it sound vaguely familiar to another decade; remember when Microsoft and Cisco were market cap kings?. And just for fun, Apples market cap is now equivalent to $87.93 for every man, woman and child on Planet Earth."
He adds that the low margin world of television set top boxes and TV is "fraught with margin danger."
We have a number of issues with the Oracle analyst downgrade. First, when Microsoft and Cisco had huge market caps, they were trading at huge multiples (over 60x according to The Wall Street Journal), while Apple is not.
AAPL trades at under 12.5x the 2013 consensus, and about 10x excluding its next cash and investments (about $125 per share).
Second, while Apple attained the highest market cap ever, on an inflation-adjusted basis, Microsoft's 1999 market cap is about $850 billon in today's dollars, much higher than Apple's at about $620 billion.
Third, Microsoft and Cisco had huge dominant positions in their main markets, with over 90% and 70% market share, respectively.
Apple, by contrast, holds a relatively small market share in the mobile market on a per unit basis, while the tablet market is still in its infancy. Thus, the runway for growth is a lot longer.
As for concerns over the Apple TV, or set top box, or whatever it will be, we think it's plain silly to be worried about a product that no one knows what it will look like or even if it will ever be released.
Unless Apple is going to throw a ton of money at the product and try to acquire content, then it's really immaterial to the Apple story at this point.
We originally bought Apple at $63.70 in March 2006, sold it at $120.99, and then bought it back in two tranches at an average price of $93.88 and have held onto it since. While we don't want to be pigs, we still think the stock has a lot more room left to move significantly higher.
Apple is a great company trading at an inexpensive valuation ahead of the biggest product launch in its history (the 4G iPhone 5). We rate the stock a "Buy" with an $825 target.
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