Apple (AAPL) is now right up against its all-time high of about $100.73 — adjusted for the recent 7-for-1 Apple stock split, of course.
The answer lies partly in the charts, and partly in the fundamentals. And by my read, the answer is a little bit of both: That Apple stock will likely hit a new high soon, but could struggle to push much higher as investor fatigue sets in.
Here’s why I am neither bullish nor bearish but mostly neutral on Apple stock.
AAPL Stock Pros
Momentum: Apple stock is up 20% year-to-date. The stock pushed through its 50-day moving average after a strong earnings in May gave AAPL a big pop following strong Q2 earnings. AAPL sentiment shifted for a number of reasons — more buybacks, better-than-expected iPhone sales and an 8% dividend increase — and the stock has been riding high as a result. But it’s more than that, as the stock is up 60% in the last year as the negativity that plagued Apple investors in early 2013 has been replaced by optimism.
Cash King: Apple boasted $53.6 billion in operating cash flow last year, and boasts over $150 billion in cash and investments in the bank. When it comes to a balance sheet, Apple has perhaps the widest moat of any company on Wall Street. Future buybacks and dividends are possible — as are future acquisitions like the recent Beats deal with a war chest like that.
Rotation to Quality: One of the big stories in 2014 has been the flight from risky momentum stocks, be they 3D printers or biotechs or fashionable IPOs that have flamed out. Apple is a real company, with real profits, and investors have been seeking out this kind of investment lately over riskier alternatives.
AAPL Stock Cons
Valuation: Apple now trades for a forward price-to-earnings ratio about 14. Sure, when you back out the cash that drops this number significantly — and when compared with the forward P/E of 16 for the broader S&P, that doesn’t seem expensive. But by Apple standards, that is actually at the high end of where Apple tends to trade historically. The stock then is actually at best fairly valued now. After all,
iPad a Risk: Investors were pleased as iPhone sales bounced back last quarter, with a forecast-topping 43.7 million iPhones sold that beating analysts’ estimates by over 5 million units. But lost in the details were risks of waning market share for the iPad. The iPhone is a big profit maker, but Apple needs to have some diversity in its product line if it wants to keep growing and impressing investors. The 16% decline posted last quarter for iPad sales is not encouraging, and could be a big risk.
Innovation Problems: The purchase of Beats will help Apple package more accessories with its existing products, and the dominance of the iPhone will likely not dissipate anytime soon. But where is the next big product launch for AAPL? Where is the creativity and innovation? The iPhone is nice… but investors are going to have to rely on more than just the smartphone if they want momentum to continue after this big run.
I’m not prepared to call a top in Apple, and I do think AAPL stock will push past the $100 and change to set a new split-adjusted all-time high.
But will it get to $120 or $130 this year?
Not a chance. And frankly, it could take a few more years to get that next leg up.
So if you have a good cost basis and decent yield on cost for your AAPL stock, I’d stick with it for the income… but for new money, I wouldn’t consider buying Apple right now. The biggest leg up from its 2013 lows is well behind us.
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he did not hold a position in any of the aforementioned securities. Write him at firstname.lastname@example.org or follow him on Twitter via @JeffReevesIP.