Picking Apple Inc. (AAPL) may not make sense at inflated prices

James Cullen from the CollegeAnalysts.com and WallStNewsletters.com contributor said it right on Friday (10/12) when he wrote: Why Apple (AAPL) Is Not a Good Value.

America shares of Apple Inc. (NASDAQ:AAPL) are now at $166 a share. Yes the company rocks, their products are groundbreaking and amazing, but $166 a share? 

It's too much.

Today, a Lehman Brothers analyst raised his price target on AAPL in anticipation of strong fiscal fourth-quarter results.  The target price?  $190 a share. I don't care how or why he thinks it's going that high, there's just one thought that comes to mind -- what if they miss the quarter?

Apple reports quarterly results on October 22nd and Thomson Financial expect earnings of around 84 cents a share on sales of $6.05 billion.

iPhone, iPod, iTunes,...how about iNsanity?  I hope Apple does beat the Street, most of us are pulling for the company that has made one of the greatest comebacks in modern day history.  The stock is up 121% in the last year and 2,186% in the last five years, it's on fire.  But if they miss my friends, imagine the sell off - ouch.

The options on AAPL are too expensive to play for normal people, but if you have cash to burn place your bets.  The Short % of the Float is only at 2.4%, that's not a ton of people betting Apple will fail.  It's more that people don't want to risk their money that Steve Jobs pulls a fast one of them.  Betting on Apple both long and short is dangerous at this point.  If you don't already have a position, don't bother.

 James said it best in his article:
So, what does one buy stocks for? Generally, I think the answer would be along the lines of what Charlie Munger has said: “All intelligent investing is value investing - to acquire more than you are paying for.” In the case of AAPL, I don’t believe you are acquiring more than you are paying for unless one uses extremely aggressive assumptions, and what is the point of purchasing something on the most optimistic of forecasts?
As for the arrival of the $131 fair value; such a valuation uses a 12% discount rate, 34% front-year earnings growth followed by 19% annually through the fifth year, a bridge year growth rate of 15%, followed by 10% annualized growth for the next four years. I now see that in the initial estimate I did a bit of rounding, so this valuation scenario works out to a value of $130.33, or 20% less than Apple’s last closing price. Given that one wants to buy a stock at a discount of somewhere between 30-40%, I’d very much like to see how others are arriving at the conclusion that AAPL is a great value right now.

 

Ted GottsegenArticle written by Ted Gottsegen

Contributor at TheStockMasters.com

 


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