Apple Shows Significant Upside Potential

The stock of Apple Inc. (NASDAQ: AAPL) recently hit a year-to-date high with a share price which continued to float around the $112 region. Together with this, the Cupertino, California-based tech giant’s market capitalization edged higher to around $600 billion. This, of course, is positive news for market participants who witnessed the iPhone maker’s stock at a 2-year low just a few months ago. Yet, now that the company’s stock is changing hands at new highs for 2016, investors are wondering if it means that it is too late to open a Buy position.

We still think that the AAPL stock is a Buy for both short term and long term investors. One of the main reasons is that mobile carriers are stating that pre-sales data for the newest iPhone 7 and iPhone 7 Plus models are solid. Next, Samsung which is the major rival of the tech giant, has been experiencing some problems with their latest device—the Samsung Galaxy Note 7. Last but not the least, a lot of market participants are underestimating the effect of the upcoming replacement or upgrade cycle on the company’s sales.


The Cupertino, California-based tech giant recently announced that it will not be disclosing the initial orders data for the iPhone 7, breaking its past tradition. Despite this, T-Mobile and Sprint announced that pre-orders for the latest Apple smartphones have been approximately 4 times greater in comparison to the previous year.

This information is important to take into consideration as it just shows that the popularity of Apple’s flagship device to clients outside of more well-known providers, such as Verizon and AT&T. Combine that with AT&T and Verizon reporting pre-order volume within the normal range and you will realize that this may possibly be the biggest iPhone roll out in the entire history. In other words, more clients from different mobile providers are interested in what the iPhone maker is selling.

Even after the AAPL stock moved up to this year’s highs in the previous week, it can be said that the price is still cheap. At present, the iPhone maker’s shares are changing hands at 13 times the earnings estimates for the following year. In comparison to the rest of the broader S&P 500, the stock price is at a discount. When you analyze the fundamentals, there may not be a better company at present.

Apple has a return on investment of 37 percent, gross margin of 38 percent, and free cash flow of $50 billion over the past four quarters. With all of these bullish numbers, the iPhone maker is still undervalued. The tech giant has a P/E ratio of 13.2, which is well below the industry average P/E ratio of 17. Additionally, Apple also has a robust dividend yield, making it attractive to all types of market participants.

As shown in the daily chart below, the nearest support line is at the $111.80 level and we anticipate that the stock is poised to continue going much higher.

We are giving the AAPL stock a Buy rating and a 12-month price target of about $130. The constant growth and bullish sales data on the company’s new products coupled with a strong income statement makes us optimistic on the short and long term performance of Apple. All in all, we see the company as rock-solid overall and has enough room to continue to grow.

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