Kass: What Does Tim Cook Know?

Since Jan. 31, 2014, following Apple's (AAPL) disappointing quarterly earnings report and guidance, the company's shares have risen by $40. Over the past three trading days alone, the shares have risen by $25.

The recent strength in Apple's shares (even after Carl Icahn withdrew his share repurchase program) hints that Tim Cook might know something that we don't know.

In order of likelihood this could be:

1. Apple might have a new product that is well along the development pipeline and is ready to be announced/introduced shortly.

2. Apple's 2014 global product sales might be stronger than consensus expectations.

3. Apple is about to embark on a much more aggressive share buyback and capital allocation strategy than is generally expected.

4. Apple is about to make a large accretive acquisition that will revive the company's growth aspirations.

5. Something else that is presently unknown and would be out of the blue.

6. None of the above.

7. Some combination of the above.

I purchased Apple recently at about $500 a share and placed the stock on my Best Ideas list.

My expectation is that Apple's shares will trade in a range between $475-$500 and $600-$625 over the next few quarters.

While Apple's salad days are over and the company's growth trajectory is maturing, with $75 of upside vs. only $50 downside (a positive ratio of 1.5:1), I am attracted to the shares both absolutely and relative to the body of alternative large-cap technology stocks.

Stated simply, in an unexciting U.S. stock market, Apple's shares represent reasonable fundamental value.

As discussed in "Dissecting Apple's Quarter," there is upside to my price target of $600-$625 a share if Apple begins to be perceived as more of a consumer products company and less of a hardware company.


This column originally appeared on Real Money Pro at 7:29 a.m. EST on Feb. 12.

At the time of publication, Kass and/or his funds were long AAPL, although holdings can change at any time.

Doug Kass is the president of Seabreeze Partners Management Inc. Under no circumstances does this information represent a recommendation to buy, sell or hold any security.

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