Apple Can Grow to $500 in the Second Half of 2013

Editor's note: Jim Cramer told viewers of his "Mad Money" TV show on Tuesday that Intuitive Surgical (ISRG) and Potash (POT) are two ugly ducklings set to become beautiful swans. Here's another stock with those same characteristics.

NEW YORK ( TheStreet) -- Apple ( AAPL) turned into an ugly duckling after the stock traded above $700 per share to $705.07 on Sept. 21, 2012. At that time ValuEngine had a buy rating on the stock. The stock was overvalued and tested ValuEngine's one-year price target at just above $700. The next day the stock was downgraded to hold.

It is difficult to explain why Apple shares spiraled lower. Perhaps investors began to realize that the post Steve Jobs Apple would lack the steady flow of innovative products that Apple lovers lined up to buy. It seems to me that the company began a transformation from the world's poster child of a growth and momentum into a huge company with steady earnings growth and a generator of dividends.

By Nov. 2, the stock was below its 200-day simple moving average, then at $590.33. Despite positive third and fourth quarter 2012 earnings investors were positioned to book profits on strength. Apple continued lower into 2013 as the winter and spring environment included speculation of new product innovations including the Apple TV. Without new product launches the stock continued lower in transition to a value stock from a momentum stock.

On March 4 I wrote Apple Joins Others Behind the Woodshed where I pointed out that the stock was down 39.0% from its September 2012 high. At this time the stock had been upgraded to buy, was 26.5% undervalued with a 12 month trailing price-to-earnings ratio of just 9.8. Apple's weekly chart profile was negative and extremely oversold.

On March 6 I wrote Apple Buy, Google Hold, Amazon Sell where I compared the three stocks known for their momentum. Apple had tested its annual value level, now a pivot at $421.05. I showed the weekly chart and the 200-week simple moving average then at $363.75. Apple began its tremendous momentum run from the 200-week SMA in March 2009 when that average was around $102.00.

On March 14 I wrote Apple Wins the Search for Value. In this post I used ValuEngine.com to drill down through 8,000 stocks to find a brand name company that was the best value stock. Apple turned out to be the only buy rated stock that was oversold on its weekly chart profile. The stock was 23.9% undervalued with a 12x3x3 weekly slow stochastic reading of just 10.39 on a scale of 00.00 to 100.00, where a reading below 20.00 was oversold.

The stock continued to move sideways to down to a low of $385.10 into April 19, 2013.

I began to track the bottoming process for Apple and on April 22 wrote Will Apple Sour a Mixed Earnings Season? In this post I profiled Apple pre-earnings along with six other key stocks reporting that week. I followed up with Apple Ripens as Amazon, Starbucks Set to Report on April 24. Apple's first quarter results included a beat on the revenue line. The earnings reaction was quite volatile. The stock surged from $406.13 to nearly $430.00 in after-hours trading and gave up these gains by 8 p.m. The stock opened at $393.54 on April 24 and rallied to a close of $405.46, ending the day with a key reversal.

On May 6 I wrote Caterpillar, Apple Ratings Peeled To Hold. With Apple downgraded to hold from buy the stock was no longer a value play. Apple traded as high as $465.75 into May 7 and has been moving sideways since then, as the bottoming process continues.

Apple is currently rated hold according to ValuEngine with fair value at $502.00, which makes the stock 14.0% undervalued in a market where 71.3% of all stocks are overvalued.

The daily chart for Apple ($431.77) has declining momentum with the stock just below its 50-day simple moving average at $435.06. The 200-day SMA is declining at $515.32. The chart pattern is trying to form an inverse head and shoulders bottom with support around $419.00. My annual pivot is $421.05 with an annual risky level at $510.64.

My conclusion is that if the stock market continues to rally in the second half of 2013, Apple should reach $500 once again. Such would be a return to an annual level at $510.64 as a pivot and on a reversion to the mean of the 200-day simple moving average.

Chart Courtesy of Thomson/Reuters

At the time of publication the author held no positions in any of the stocks mentioned.

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

Richard Suttmeier has an engineering degree from Georgia Tech and a master of science from Brooklyn Poly. He began his career in the financial services industry in 1972 trading U.S. Treasury securities in the primary dealer community. In 1981 he formed the Government Bond Department at LF Rothschild and helped establish that firm as a primary dealer in 1986. Richard began writing market research in 1984 and held positions as market strategist at firms such as Smith Barney, William R Hough, Joseph Stevens, and Rightside Advisors. He joined www.ValuEngine.com in 2008 producing newsletters covering the U.S. capital markets, and a universe of more than 7,000 stocks. Richard employs a "buy and trade" investment strategy and can be reached at RSuttmeier@Gmail.com.

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