Goldman Sachs surprised the street by making Apple a “conviction buy,” boosting the reluctant averages. Meanwhile, oil wobbles, but markets up (for now) awaiting Fed minutes.
WASHINGTON, Nov. 18, 2015 – Ever since Apple (symbol: AAPL) found itself on the seriously losing end of the 1980s and 1990s PC battles with rival Microsoft (MSFT), it’s been fashionable for analysts and amateurs alike to predict the company’s imminent doom. It’s trite and predictable. But such Apple-bashing always draws eyeballs even today as well as attention for the financial “reporters” and “analysts” who crave TV face time, so it continues.
Throughout 2015, Apple has been battered by “peak iPhone” scare headlines that seem to imply this now international monster of a company will begin its Blackberry-style death spiral very soon if not right away.
While the company will continue to manufacture pace-setting hardware products, including its still very popular iPhone line, hardware for this company—from computers to phones to its set top box—provides its generally well-off clientele with cutting edge products that are fashion-forward and actually work right out of the box.
But, as was even the case with the original Mac operating system, it’s Apple’s software and software ecosystem and its slowly but deeply evolving tentacles that reach out to grasp and hold new income streams–like consumer payment and credit, music, entertainment, health and life services, and perhaps even an autonomous automobile—that are ultimately insulating the company from the fate of hardware has-beens like Dell and Hewlett-Packard. And Blackberry (BBRY).
But hey, who cares? Let’s sell AAPL, because, like General Electric (GE), it’s peaked forever. Which is exactly why funds and investors alike have been dumping mass quantities of AAPL shares for well over a year.
The other problem with the stock is (or perhaps was) the fact that it was increasingly “over-owned” by investors and large institutions and funds. Fearful that the company had indeed run out of steam—particularly when it was moved into the Dow Jones Industrials, which has long been regarded by many as pastureland for one-time go-go growth companies—investors and funds alike had been dumping AAPL by the boatload. In their favor, nearly all those dumpees were booking massive profits on the stock, so raising some cash, particularly in the lousy market environment of 2015, made at least rote sense.
But taking a mega-sized tech company like Apple down to a dividend yield of roughly 2 percent and a bank-like PE ratio of 12.5 or so was foolishness and overkill. Apple is not some lousy, overvalued 2015 startup company, many of which have stunk up the joint upon issuing overpriced and overoptimistic IPOs. Apple is a really big company that makes really big money and is constantly diversifying itself out of the commoditization trap.
This is what caused those generally canny analysts at Goldman Sachs to announce they’d put AAPL on their closely-followed “conviction buy” list. That doesn’t just mean they put it on the company’s “buy” list. That meant that Goldman was trumpeting their Apple recommendation a bit like the notorious Jim Cramer flogs his latest stock prediction by punching his “BUY-BUY-BUY!!” button.
Goldman raised its target price for AAPL from Tuesday’s closing price of $113.69 per share to a much more impressive $163. Analysts noted what should have been obvious to all, namely that AAPL trades like a “hardware stock” at its current PE, which we’ve already characterized as living in bank territory.
Analysts further noted that, as Apple becomes more service-oriented, it will evolve into a company like Facebook or Google, both of which sport much higher PEs. In a note to investors the company elaborated further:
“Apple’s multiple embodies the scars from prior fallen giants in hardware (Motorola, Nokia, BlackBerry, and HP, to name a few). However, we think Apple’s business model has less in common with traditional hardware companies, and more in common with companies that monetize mobile users through content and services…”
That’s about right. The market liked it and is currently catching a nice bid, with all averages up nearly 1 percent as of the noon hour EST.
But, with oil temporarily dipping below $40 bbl. (WTI) and with the Fed’s dreaded minutes due out a 2 p.m., we’re not doing anything today until the smoke clears.Click here for reuse options!
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