Rising to a record on speculation about new products, Apple feels a little toppy here

08/17/2012 6:05 pm EST


Jim Jubak

Founder and Editor, JubakPicks.com

Shares of Apple (AAPL) hit an all-time record today before closing at $648.11 a share. That price gives Apple a market capitalization of more than $602 billion. Apple’s shares are up 71% in the last year, 60% in 2012, and 18% in the last three months. The stock’s performance has been a major driver of the 8% gain in the last three months in the market-cap weighted Standard & Poor’s 500 stock index.

But like the market itself Apple is starting to feel a little toppy.

Why do I feel that way about Apple’s shares?

Apple’s almost 2% gain today was based almost totally on speculation about Apple products that aren’t yet on sale and about which the company has provided very few details—and nothing like a schedule for their release.

The first set of speculations centers around Apple’s plans, if any, to introduce a smaller iPad to fight off challenges from Microsoft (MSFT), Google (GOOG), and Amazon.com (AMZN.) A research report from Peter Misek, an analyst at Jefferies & Co., said that a smaller iPad could go on sale in October.

A second set, in same report, centers around a new Apple TV. Today’s report said that a new Apple TV could reach stores by 2013. “We believe the iTV is in full production,” Misek said in the report. The analyst raised his target price on Apple shares to $900 from a prior $800 a share.

The reports based its conclusions on activity at Sharp, a company that makes TV screens, and at Hon Hai Precision Industry (which trades as Foxconn), which assembles the iPad for Apple. Hon Hai had a 5% revenue increase in July, the report notes, a time when revenue is usually flat. A smaller iPad, priced at $300, would sell 8 million units in the three months after introduction, the Jefferies & Co. repot estimated. That would generate about $2.4 billion in revenue for Apple.

A couple of things to keep in mind about this report and the speculative juice that it and similar pieces of research are providing for Apple’s shares. First, a mini-iPad priced at $300 would be a radical break with Apple’s very careful strategy of maintaining premium prices for its new products and only gradually reducing the prices of older models to compete in the lower end of the market (albeit still at premium prices.) Second, pricing this speculation into Apple’s shares now ignores the company’s warning about a drop-off in September quarter sales as consumers put off buying iPhones before the introduction of a new iPhone model in October. If the price of Apple shares gets high enough now, that would seem to set up the stock for a replay of its drop to $573 from $612 in July on disappointing revenue and earnings numbers produced by exactly that kind of consumer delay in purchasing.

I don’t think you need to sell your Apple shares here. I’m not selling Apple out of my Jubak’s Picks portfolio http://jubakpicks.com/ . But neither am I raising my $650 target price at this time. You might consider taking profits in part of your position (with an idea of rebuying on any October post-earnings drop) and I certainly wouldn’t chase the stock here. (By the way, Apple’s record date for paying its first dividend ever was August 13 so if you sell shares now you will still receive the dividend payable on August 16.)

Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund http://jubakfund.com/ , may or may not now own positions in any stock mentioned in this post. The fund did own shares of Apple as of the end of March. For a full list of the stocks in the fund as of the end of March see the fund’s portfolio at http://jubakfund.com/about-the-fund/holdings/
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