I had the chance to talk with four different British portfolio managers this past Friday, review the 2007 year and discuss the outlook for 2008. Funny, the four conversations ended up circling back to Apple (NASDAQ: AAPL). Two of the managers mentioned my article for BloggingStocks from November 24. I wrote that the this could be the last time to buy the shares under $175. The stock closed at a new 52-week closing high on Friday at $194.30, almost $20 higher than the November 24 price. Yet, with all this action and performance, recently and all year, the stock is still a buy.
My friends the Brits are very bullish on Apple, and are aware of the price targets out there by the various analysts, including mine at $225. These four managers, by the way, manage $16 billion in the U.S. markets collectively. One has done the "internal modeling," and has a $290-$300 price target by year end 2008, and another has a $375 price target by mid-year 2009. All managers have sworn to me that they drank nothing harder than English tea during our conversations!!
Seriously, the momentum behind the bullish scenarios is all the obvious things from iPod, iPhone, new Mac, upgraded software and of course, the excellence of the retail store system. But the behind the scenes reason is the margins and the on-going solid component pricing. Components, which Apple has secured at great pricing, was thought to be a one- or two-quarter event. It appears to be gravitating to a permanent pricing structure.
For a hardware company like Apple to achieve operating margins above 15% is virtually unheard of. But Apple's margins seem determined to stay at those levels and maybe even a bit higher. With revenues beating expectations and margin remaining high, earnings revisions are only going higher. The company has been very careful not to let analysts get ahead of themselves, but eventually, Apple will have to admit that the permanent margin structure is on a higher level.
Tea and crumpets aside, Apple is still a buy...
Georges Yared is the CIO of Yared Investment Research and the author of "Stop Losing Money Today"
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Reader Comments (Page 1 of 1)
12-11-2007 @ 6:31AM
AUGUST said...
This is a great perspective Georges.
Like the Brits, I think even your estimate ($225) for Apple's 2008 growth may be a little on the low side. In fact, I think $300 may be pretty much in line.
My thinking is greatly affected by the convergence of these two circumstances, which seem to be rapidly gaining a formidable strength:
1) Marketing prowess and subsequent cultural popularity. (Apple is the acknowledged and rapidly expanding leader here)
2) Technological proficiency coupled with skill in development of timely products consumers are eager to buy. (this area is the key growth factor that I feel we are only beginning to see explode)
So... $300 isn't much of a stretch if you consider we may be seeing the only the start of the show.
Thanks for listening & as always, thanks for the value you bring to investors.
AUGUST
1-05-2008 @ 10:20AM
Patrick said...
600.00 in 18 months Buy Apple