Editor’s note: This article was first published in May 2013. All share prices, valuations and price targets for Apple and Google are from before their 2014 stock splits (Apple’s was 7-for-1 in June 2014), and the 14-month forecast it discusses has long expired. The forecasts and suspicions in this May 2013 article are the author’s opinion and are kept as a historical record. They are not investment advice.
The problems Apple’s share price is going through were probably set up on the very day Steve Jobs died, since most of us knew that Apple’s growth could not carry on at that pace. When we talk about a company like Apple, the market is no longer satisfied with it simply meeting expectations. It practically wants it to double them year after year, and clearly there comes a point when that is no longer possible. That point arrived in the short term.
Some fund managers were giving it a price target above $1,000 a share at a time when it was already known that Apple could not keep up that rate of growth. The thing is that Apple at $650 a share was a bargain with a buy recommendation, given the company’s potential and how well it had done until then.
Many investors bought at those prices, and even around $700, without knowing that the same people who had issued price targets of $800 and $1,000 a share would, a few weeks later, be issuing targets of around 500 and 450 euros. Either they are very bad at their job or it was a clear speculative strategy, and when we are talking about certain firms, I am quite sure they are not usually bad managers.
Now other funds are appearing that say Apple is worth $270 a share. That would wipe about $350 billion off the company’s value. And make no mistake: Apple is still the most solvent company on the planet. Its shares were not worth $1,200 each before, nor are they worth $270 now.
They called on small investors to buy at $700, and now they will call on them to sell in order to steer the stock towards $300 or below, at which point it would go back into the big funds’ portfolios and the gains and lofty price targets would start all over again. It is in these baffling market moves that small investors buy at the top and sell at the bottom, led by the big buyers who buy while they scare you to death.
Apple has been through situations like this before, as have many other companies. The same thing is happening now with Google: investing in it was discouraged at $250 a share, yet now buying at $900 is recommended, while we hear price targets above $1,200. History repeats itself.
That is why our advice in this case is always the same. History and the experience of the great investors tell us so: if something did not look good to you at price X, do not invest because people tell you to buy at X+Y. Let it go and learn from the mistake. It is what is known as a moving train.
I would almost venture to say that in less than 14 months we will see Apple back above $700, or even higher, since the big speculators will make sure of it, just as we will see doubts about Google’s share price that will trigger sharp corrections. What we do not know is whether that will happen when the stock is up in the clouds or further down.
On fundamentals, Google is nowhere near being worth more than Apple yet, so at its current price it is too speculative, with its eyes set on future results. That does not mean Google will not overtake Apple, since everything suggests it will, and not because Apple deteriorates but because of Google’s astronomical plans.
Featured image: Thomas Wolf ( Der Wolf im Wald ), CC BY-SA 3.0, via Wikimedia Commons.
