Monday, 13 February 2012

Apple hits 500. Next stop, $650?


At the opening of today's market, Apple reached an all time high of 503.83. Here are a few reasons why Apple continues to grow:

- Constant innovation and high consumer demand. Steve Jobs is quoted for saying, " A lot of times, people don’t know what they want until you show it to them.” Apple is working on the iPhone 5 and it now has an Apple TV on the market. Macs continue to dominate PCs in terms of quality, and iPods remain the default go-to MP3 player.

- Recent earnings report. Apple blew away expectations, reporting earnings of $13.87 per share on January 24, 2012. This beat many analyst's expectations of which the consensus was $10.87.

- Rumors of a dividend. Apple has so much cash that it cannot possibly spend more than it currently is on research and development, and many investors are hoping for a dividend from Apple. It is holding 9.8 billion in cash according to their balance sheet as of 9/24/2011, and with the recent earnings report, we know that it must have grown.

-Global expansion. Apple is now breaching into China with its iPhone 4S, and it has yet to completely enter India.

Bottom line:
With earnings continuing to rise and Apple's presence in the world continuing to expand, it seems as if nothing is going to stop future growth of the stock.

However, there are headwinds facing Apple.

-One of the current risks involved with Apple is its growing concern with its supply chain. Apple is receiving criticism about the working conditions of its suppliers based in China. The factories that produce parts for Apple products are now undergoing audits from the Fair Labor Association.

- The Windows Phone from Microsoft/Nokia and the growing Android line of smart phones possess threats to the popular iPhone from Apple. Apple is worried about losing market share, and is currently filing lawsuits against Samsung's Galaxy Nexus for infringing four patents of Apple's.


I strongly feel that Apple has much more room to run up. The headwinds that Apple faces are only short term, and because of their constant innovation, their products will remain competitive and superior to others in the long term. Apple recently broke the $500 mark, which was more or less a psychological resistance level, and now is most likely poised to take a breather. Many people have hit their price targets and are willing to exit, while some are still holding and anticipating higher returns still. If Apple decides to split its stock so that smaller investors can enter the market (which it has done before), then the stock price will benefit tremendously. Therefore, with the significant upside and minor risks Apple faces, I believe that by the end of this year we will see $550, and by next year we will see $650, given that the stock will not split.

- Kunal Agrawal

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