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How Ripe Is Apple’s Stock?

A Potential Switcher Needs Advice |


| iPod, Meet the Xbox…..

November 04, 2005

How Ripe Is Apple’s Stock?

Arik Hesseldahl

Analyst Steve Fortuna at Prudential Financial thinks Apple’s stock has is about as sweet as its going to get. He downgraded the stock today from “overweight” to neutral, citing Apple’s recent run-up. Thursday it hit a new 52-week high of $62.32 a share before closing at $61.85. As of 2:18 EST today Apple stock was trading down 1.7%. Fortuna’s note says that “We fully expect a strong December FQ1 and full year FY'06 but believe the stock has now fully discounted this reality,” and that “We believe the stock is now priced for perfection.” The growth of iPod sales is going to slow he says, which given that rate has run at between 300% and 400% over the last two years, its not unreasonable. But he also says: “Likelihood of another new hit product like the iPod is low.” Here Fortuna and I part company.

I wonder how he comes to that conclusion? Now that the video-capable iPod is a reality, and a video download service is part of iTunes, I think Apple’s quest to slowly surround consumers with more products bearing that bitten-Apple logo has only begun, and I can’t imagine what company could do it better.

Microsoft and its buddies in the Wintel PC business have coveted the living room for years, but can’t seem to find the right formula that welds the TV, the PC and the Internet in a way that resonates with consumers. Microsoft has tried and mostly spun its wheels with the Media Center PC family, and Intel has a new PC concept of its own called Viiv (pronounced like “five”).

Apple’s shown some interest in the same direction with its latest iMac G5, which sports a remote control. But I wonder if Apple, now that it will be using Intel microprocessors might be a candidate for the Viiv platform. Somehow I doubt it, mainly because Apple tends to want to get ahead of the rest of the computer industry rather than follow along with the pack. But one option of the Viiv platform is an optional TV tuner card. That I think would make for a very interesting option to the iMac line.

But piping TV directly to the computer is only one way to get Apple into the home entertainment experience, and in truth, probably not the best way. I for one will be very interested to see what Apple has on tap for the next step forward in Wi-Fi wireless networking. It’s shown the way with the Airport Express, which it launched last year. It pushes music from iTunes playlist stored on a computer to the stereo over the wireless network.

Why can’t video be next? Apple is one of several companies in the Enhanced Wireless Consortium an industry group seeking to nail down a standard on 802.11n. Once Wi-Fi in the home reaches 100 megabits per second, pushing high-quality video stored on a hard drive to a TV set will be easy. And it’s been awhile since there’s been a new product from Apple on the Wi-Fi front. I suspect there are some pretty cool things in Cupertino pipeline. I’m no stock analyst, but I personally wouldn’t bet against Apple’s ability to find a way to shake up the entertainment business yet again.

03:31 PM

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So when will there be another hit product? from Applepeels

I just checked out BusinessWeek's new Apple Blog, Byte of the Apple. One of their first posts, How Ripe Is Apple’s Stock?, speculates on comments made by Analyst Steve Fortuna at Prudential Financial. Fortuna said the following.“We fully expect a [Read More]

Tracked on November 4, 2005 08:56 PM

he probably is mad that he did not buy some Apple stock at $12 :). As for Apple going to Intel chips, I think there are some interesting questions that come up, will that mean OS X is an option for you PC, triggering a PC revolution with people switching over to the Apple OS? I would. I love Apple, and just waiting to see what else come out of there, as for the stock you will be foolish not to invest in it.

Posted by: karmadude at November 4, 2005 04:38 PM

Stocks do peak - and people do lose money. Apple has been great in the last two years. Apple stocks seem to be bought on emotion though - thats why it goes up and down so much. I bought quite a while ago at a low price, and am pleased with that... they've turned some dollars for me.

The next big change will be the Apple/Intel thing. And its still unknown.

Those AMD dual processors are still kicking Intel's a**.

Posted by: Steve at November 4, 2005 05:09 PM

I think that apple has plenty of things left to come out with. They seem to be a company that isn't first to market, they let other people test the water. Then they take note of the mistakes and come out with something way ahead of everything else. When Mr. Jobs made the switch to intel announcement he said in passing something along the lines of, "intel will allow us to make some pretty cool stuff. We have a lot of stuff in the labs but don't have the right processor to power it." With low power chips that are powerful, Apple could very well go into the tablet computers. They could also come out with a PDA. Once Apple comes into the living room to take over the TV, combinded with the looks of Mac's, how could people not want to buy it? I think after the initial switch to intel in the computers Apple will come out with many new things that will make them not a company that people refer to as the iPod company, but a computer company. I am just excited to see what "really cool things" they have in the labs.

Posted by: Scott at November 4, 2005 05:33 PM

Also, their stock for the current future out look is priced well and shouldn't have much movement. But I do think that what they will come out with will give new reason for the stock to go up. It is just a matter of time. I suggested this stock to a friend when I had no money way back when the stock was a split adjusted $8. If only I had money for it then. I was able to get in back at $35 and again at $45 and recently at $55. All good choices. I'd wait and see what happens in the first few months next year and then if it is still around $60 it would be worth buying more of, because I believe the intel processors will allow windows, producing even more switchers which will only help the bottom line. Then they will come out with something that isn't a Mac, or an iPod, and people will buy. Lots of room left to grow. All their stuff works because they build the software and hardware. They have some of the best customer service. This will create more repurches. I just bought my second ipod for the video. Replacing is on the way. The stock will go up it is just a matter of time.

Posted by: Scott at November 4, 2005 05:40 PM

Sorry for three comments but I keep thinking of things to say and more information. Another reason to maybe buy their stock around Jan. or Feb. is from this article,

If they come out with intel chips sooner than expected, it would be like a surprise to the market. Also that means things are going smoother than planned, so that companies swicthing over to intel code might have an easier than time doing so than first thought.

Posted by: Scott at November 4, 2005 05:46 PM

As to the stock, the question isn't betting against Apple’s ability.

The question is are you willing to buy Apple stock at over sixty dollars per share with the expectation that it will continue to go up?

With the level of enthusiasm that currently surrounds Apple stock, it will be almost impossible for the market to be pleased even with the great results that Apple is likely to turn in for their Q1. If there is the slightest bit of bad news, look out.

Posted by: ocracokewaves at November 4, 2005 09:06 PM

Well put, Arik.

Apple seems to have a corporate culture which gives designers and engineers risk-taking and decision making charge. As an engineer, I am thrilled that this formula is working so well. As an investor, I think that Apple's power structure will be extremely difficult for other companies to replicate in the short term. Until then, Apple will be one of the few companies with the track record to turn a risk discount into a risk premium.

Posted by: Wolfgang at November 5, 2005 11:07 AM

I've been very happy with the growth in Apple's stock to date, but I'm expecting it to really take off next year, for two main reasons. First, Microsoft will ship Windows Vista, which will be as resoundingly mediocre at their current product, causing even more people to flee to the Macintosh. Secondly, every copyright holder with an inventory of television programs will realize that they don't make any money with their programs sitting on the shelf. Our favorite TV sitcoms, cartoons, you name it, will show up on the iTMS, and Apple will sell billions of them.


Posted by: John C. Randolph at November 6, 2005 08:24 AM

The price of a stock is really not that important. The more important thing is the Price/Earnings ratio. Apple's is around 37. The Washington Post on the other hand has a price of $745 per share but it's P/E ratio is only at about 24. The price of the stock is less important than most people think. I believe that Apple is priced a little high because people have bought it knowing what they are coming out with. But we all know Apple is secretive so who knows what else they have planned. The $60 price tag is not that outragous and if they continue to grow earning at the same rate, the price will very quickly become cheap at around $60.

Posted by: Scott at November 7, 2005 04:42 PM

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