Apple: The $1.7 Trillion Question
Yesterday, I shared an interesting video interview between CNBC and Deutsche Bank analyst Jeriel Ong. The key topic of conversation was Mr. Ong’s decision to increase his Apple price target in June – three times! Here’s an interesting exchange between interviewer and interviewee (transcription provided by Apple 3.0):
“CNBC: Tell me now about the price target hike, though. Correct me if I’m wrong, but on June 9 you were at $350. On the 22nd you were at $380. Now you’re at $400. It looks like you’re chasing it and it makes me wonder, when is too high? You’re at $400 now, is $450 at the end of the month? What’s going on?”
“Jeriel Ong: Yeah, it’s a good question.”
A weird sell-side stance on Apple
Apple stock has been moving so high and so fast – over 80% gain in the twelve months leading to the end of the second quarter – that analysts can’t seem to catch up. As a result, the following distortion is happening:
Notice that Wall Street rates Apple a “Buy” on average, with about 60% of analysts going further and calling the stock a “Strong Buy”. But at the same time, the average price target on the stock is 10% below where shares trade today. What does this mean: buy AAPL and watch it drop?
The $1.7 trillion question
Analysts seem to like Apple’s business fundamentals and the stock, but shares have been leaping well ahead of fair value estimates way too fast. These experts are now faced with a decision to make: (1) increase the price target fast and often, or (2) downgrade the stock to “Hold” or even “Sell” due to rich valuations.
Deutsche Bank’s Jeriel Ong has picked a side. While it looks obvious that he is merely chasing the stock price at this moment, at least he has been one of the few analysts to stick his neck out and make a decision. Others will need to do the same soon, around Apple’s July 30 earnings day, when analysts are effectively required to publish on the company’s results and update their opinions.
This is not a puzzle that only Wall Street needs to solve. Investors will have to make up their minds too: remain a shareholder after the parabolic rise in share price, or bail out while they are well ahead? This is the $1.7 trillion (Apple’s current market cap) question.
I have my opinion on the matter, but I would rather hear from the readers first. If you own Apple today, what are you planning on doing? Leave your comment below.
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(Disclaimers: the author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting The Apple Maven)