Editor’s note: This article was first published in November 2012. The prices, peaks, support levels and analyst targets for Apple, Google and Inditex reflect that moment only. All three stocks have since split, so the per-share prices cannot be compared with today’s quotes.
These are three so-called crisis-proof stocks. Just look at the return each of them achieved from its low in 2009 (a year of deep recession) to its high in 2012 (a year when the recession is even deeper).
Even so, they have dazzled with their returns and received the strongest recommendations from analysts, but… now doubts are emerging, and those doubts are what we are going to try to clear up, with the warning that in the stock market nothing is certain and anything can happen.
Apple
Apple is like the phoenix. The returns of this company, whose hallmark was the great Steve Jobs, are staggering. To give you an idea, since 1985 Apple’s stock has risen 35,000%. From 1999 until today (13 years), the return has been 7,500%, and from the 2009 lows it has gained no less than 600%.
But even the phoenix stopped flying, and Apple may not be going through a mere market correction: it could have set a major top at $705, because its business model and market are starting to raise serious doubts.
To begin with, Steve Jobs is gone. It isn’t that Tim Cook isn’t up to the job as the company’s CEO. He simply isn’t Jobs. The mobile phone and tablet market is volatile, changing and fiercely competitive.
Over time, this market will end up competing on price, and Apple will have to toe the line and give up part of its profit margin. At the same time, Chinese factories are raising their manufacturing costs. So in a market that will end up demanding reasonable prices, with lower profit margins, lost sales to the competition and no Steve Jobs to add his masterly touch, Apple’s profits could fall over the next few years by more than the market expects.
The days of price targets of $800 or $1,200 are over, and targets of $600 and $550 are starting to be heard. Of course, Apple already went through this kind of uncertainty in 2009 and ended up dazzling the market with that 7,500% return, but I insist: Steve Jobs is no longer there to take on the other giants in the industry.
Even if we only look at Google as a search engine, with the profits it makes through its AdSense/AdWords advertising system, the company could still have plenty of potential, despite the fact that its latest results disappointed the market to some extent.
Some people think Google will play a much more important role in the future, and it isn’t just about the search engine: the company has already made the leap into physical products. It is a company that isn’t afraid to diversify and is constantly moving and experimenting. In fact, it will cause Apple a lot of headaches.
What will Google be in the future besides a search engine? We could easily see Google Renewables, Google vehicles, 3D Google glasses, physical Google stores and so on.
There is a great deal still to be invented in technology, and for many people it is hard to imagine constant progress without Google being involved.
From its 2009 lows to its 2012 highs, Google’s stock has risen 200%. It is now going through a correction from its $774 peak. It shouldn’t fall below $655, because if it does, it could head toward the $560 area.
Some believe that in 5 or 10 years Google could be trading above $1,000 a share.
Inditex
I admit I have been wrong about this stock on several occasions. I thought it was expensive at €52 a share, and overvalued at €70. Don’t even ask how I see it at €100 (extremely expensive). Then I asked myself why I thought it was expensive, and it is simply because it is a Spanish stock in a Spanish index, where we have “visual resistance” to three-digit share prices.
Our colleague Victoria Bernal says that if this stock were listed in the S&P 500, it would already be trading between $200 and $300, because of its growth potential.
If Inditex has risen as much as 350% from its 2009 lows to its 2012 highs, in the middle of the crisis, what won’t it be capable of when the crisis is over?
Goldman Sachs predicts that Inditex will triple its sales by 2020 thanks to its entry into and presence in emerging markets. Goldman Sachs expects Inditex to lead the clothing market well ahead of its main rival, H&M, which today doesn’t even come close.
When the big foreign funds come into Spain, Inditex and Grifols will be in their portfolios. Still, I won’t be the one buying Inditex above €100, because I can’t help seeing it as a train I missed at €50–60. That doesn’t mean we won’t end up seeing it at €150, as Victoria B. says; she considers that her 12-month price target.
For now, hers is one of the highest price targets for this stock: most research firms put it at between €105 and €115, levels very close to the current price and, frankly, not very attractive for an investor looking for higher returns even at the cost of taking on more risk.
And let’s not forget that the stock has had three upward legs, the last of them very steep. It’s possible that before it triples its sales, it will disappoint the market in some quarters and go through a sharp correction before continuing its climb.
Featured image: Niklas Tenhaef, CC BY 2.0, via Flickr.
