Apple, Inc. (NASDAQ:AAPL) has raced more than 30% higher so far in 2017, seemingly putting to bed the idea of “peak Apple” and the idea that it’s ever too late to bite into AAPL stock. However, shares are taking a breather after days of running, and investors could rightfully call at least a short-term top.
Click to Enlarge But even if it does rest, its arrow is still pointed north. With shares at roughly $153 today, Apple shares still have about 20% more upside.
Here’s why I see AAPL stock heading to $185 by this time next year.
Reasons to Love Apple
The Cupertino-based tech giant didn’t impress Wall Street with breathtaking fiscal second quarter earnings results, but Apple’s results didn’t whiff, either.
Nor did the company warn that the highly anticipated iPhone 8 would be delayed until 2018 as some analysts feared. On the conference call with analysts, CEO Tim Cook pointed to the fact that iPhone sales missed because of a “pause” in demand.
This “pause” can only be associated with people waiting for the iPhone 8.
The scenario Cook described was expected. Why would consumers buy the current iPhone when Apple is on the verge of its super-cycle? The 10th-anniversary iPhone is expected to feature a new OLED display, and if rumors are to be believed, the company believes it can get away with selling it for more than $1,000 per device.
This explains why Wall Street didn’t punish AAPL stock for the miss on unit sales (50.8M iPhones vs. expected 52M) and the miss on revenue.
Morgan Stanley analysts wrote this following the earnings release:
“What matters from the March quarter conference call? Frankly, not much, given current fundamentals reflect delayed demand ahead of new iPhones expected to launch in the month of September and ramp in volume during the December quarter.”
From my vantage point, this pent-up demand should propel Apple shares to $170 per share by the end of 2017.
Bottom Line for AAPL Stock
Apple is currently trading around $153 per share, just off all-time highs near $155 set on Tuesday. The stock is currently the best performer in the Dow Jones Industrial Average.
Aside from besting the all the major indexes, Apple has outperformed FANG stocks Facebook Inc (NASDAQ:FB), Amazon.com, Inc. (NASDAQ:AMZN), Netflix, Inc. (NASDAQ:NFLX) and Alphabet Inc (NASDAQ:GOOGL).
But unlike the FANG stocks, Apple also pays respectable yield of 1.7%. And with the company’s cash balance now approaching $260 billion, AAPL stock is still arguably the cheapest stock on the market.
What’s more, the company that just upped its capital return program by $50 billion. And it still has room to raise its capital return to, say, $150 billion and it wouldn’t adversely impact Apple’s capital needs to run the business.
Based on fiscal 2018 consensus estimates of $10.36 per share, Apple is priced at forward P/E of just 14, which is about 4 points below the S&P 500 index. Assuming Apple was priced on par with the rest of the market, the shares would trade today at around $185 — making AAPL stock the best tech bargain on the market.
It’ll get there, but on the strength of its business, not Wall Street giving it a break.
As of this writing, Richard Saintvilus did not hold a position in any of the aforementioned securities.
