After Apple’s 2019 Run, I Am Going to Take Some Profits

Analysts are all super bullish on a 5G phone's market potential

Heading into Apple’s (NASDAQ:AAPL) next earnings report on Jan. 28, Wall Street analysts are practically giddy with anticipation, which is why this (small) Apple shareholder is taking some profits.

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Since Dec. 23, more than a half a dozen firms have come out with bullish calls on AAPL stock, issuing or reiterating buy or outperform ratings, mainly over the potential gargantuan profits they expect the company to earn from the rollout of 5G phones expected later this year. 

Analyst Tom Forte of D.A. Davidson on Monday raised his 52-week price target from $300 to a Street high of $375, implying roughly 20% upside from where it recently traded. A week earlier, Jeffries’ $350 price target was the highest among analysts.

“There is enough complexity and hype when it comes to 5G that we believe Apple can exploit this multi-year opportunity,” Forte wrote in a note to clients.

Analysts Are on the Apple Bandwagon

Wedbush Analyst Daniel Ives has a more “conservative” official target of $350. However, he argued in a client note that there could be a “bull case valuation of $400” by the end of the year if Apple transforms as he expects it to from 5G and the growth of its services business. He also argues that AAPL has the potential to be the first $2 trillion company by the end of the year.

Ives sticks his neck out, further predicting based on channel checks. His note speaks of “robust” iPhone 11 unit demand and “jaw dropping” AirPods momentum. As a result, he expects AAPL to show “clear upside” in the December quarter and issue strong guidance for the March period

“Many investors are asking us: Is all the good news baked into shares after an historic upward move over the last year and into early this year? The answer from our vantage point is a resounding NO, as we view only the first part of this massive upgrade opportunity leading to a transformational 5G ‘super cycle’ with 200 million to 220 million iPhone units now the new line in the sand for demand,” he writes.

My Note of Caution on Apple Stock

Look, I am not here to criticize the quality of Forte and Ives’ analysis. Still, even the most ardent of Apple stock fans need to take a breath here and remember Warren Buffett’s advice to investors to be “greedy when others are fearful and be fearful when others are greedy.” Indeed, Bernstein’s respected analyst Toni Sacconaghi has been raising concerns about the frothy valuation for AAPL stock for months. He noted in May that Apple is as “expensive as it’s ever been since 2012 when it exited its hyper-growth stage.”

Apple stock surged nearly 90% in 2019, triple the 29% raise for the benchmark S&P 500. For history to repeat itself, Apple will have to deliver flawless quarter after flawless quarter. Is this possible? Of course it is. However, when stocks are so over-hyped, the slightest hint of bad news can send them into a tailspin because short sellers and others are rooting for the company to fail. Logic goes out of the window.

Once that pullback happens — and it will happen — “greedy investors” should enter the fray and buy Apple stock. For now, though, the time isn’t right to put new money into the iPhone maker.

As of this writing, Jonathan Berr owns a small position in Apple.

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