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Yes, Apple's Still on Track for $600

NEW YORK (TheStreet) -- On July 10, Apple (AAPL - Get Report) closed at $420.73 and "Apple Just Signaled the Bottom You're Waiting For?" was published, a month Apple closed at $467, and my next Apple piece was titled "Apple at $500 -- No, Apple at $600. The timing was perfect because it was published at 6 a.m. on Aug. 13.

A few short hours after the piece hit the wire, Carl Icahn announced a large long position in Apple, sending shares soaring above $500 the following day. For those that listened and bought at $420, a gain of $80 a share was the prize.

As much as I (or you) would like to have Carl Icahn call and let us know ahead of time when he is going to announce a significant position, that's not likely to happen anytime soon. The good news is that we don't need a phone call from Icahn or any other billionaire to prosper and discover alpha (returns greater than the market average).

The key to gaining alpha is finding undervalued stocks relative to public perception. Take a look at two comments received in part:

"I like your optimism but Apple will have trouble getting over 470 and higher. While they may hit 500 the road will be down after product launch like last year. We will fall again as investors realize things have not change much but margins are growing smaller and mkt share has peaked...."

"people can do whatever they want with there money but I just cant wrap my head around buying stock for the current price.... to each there own"

There was one more that was my favorite because the reader posted the comment about one minute before the Carl Icahn announcement. My response to him remains. Also, I'm leaving the names out because my intention isn't to mock or say "I told you so," but rather to inform how negative sentiment will drive the price of a stock lower than fair market value. Ideally, if you want to buy value and unloved stocks, they must not only be exceptional values on paper, but others need to recognize the value.

AAPL Percent of Float Short Chart

Thanks to the power of high-speed Internet and comments, we can gain a surface level measurement of sentiment. Surface level because less than 1% of readers post a comment. Concerns weren't entirely unfounded even if Apple destroyed BlackBerry (BBRY - Get Report) and Nokia's (NOK - Get Report) market share. The greater fear by some is that Android (GOOG - Get Report) powered phones will at a minimum drive margins lower. The fear was real and short sellers put their money on the line betting for continued weakness. Notice the short interest peaked and more than doubled from the same period in 2012 when Apple reached a bottom.

AAPL Gross Profit Margin (Quarterly) Chart

While gross margins have come under pressure compared to last year, Google has also, and the chart says it all for BlackBerry. Apple's margins have more or less remained consistent if you're willing to look beyond a quarter or two. Perhaps the most significant chart, and the reason I think Apple has the legs to appreciate beyond $600 is the earnings-per-share chart. As Apple reduces the size of the float, earnings per share will improve even before new products and increased sales are included.

AAPL EPS Diluted (Quarterly) Chart

Finally, I love the price chart pattern. The second double bottom move bounced off support on the weekly 200 moving average. The monthly chart (the one long-term investors should pay attention to) hasn't entered a bearish trend since before 2009. The bull trend remains intact, and Apple under $600 is a value buy.

At the time of publication, Weinstein was long BlackBerry.

Follow @RobertWeinstein

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

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AAPL $93.74 0.00%
BBRY $7.06 0.00%
GOOG $693.01 0.00%
NOK $5.87 0.00%
FB $117.58 0.00%


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