In my earlier run-down of Street views on Apple (AAPL) today, I failed to notice one put out yesterday by Laurence Balter�of Oracle Investment Research, who argues the selling of the stock is “overdone,” reiterates a price target of $670, and advises investors “backup the armored truck.”
Apple, argues Balter, had “overshot” its typical correlation with earnings back in August, but is now undershooting, he believes, because the market is confused over what price-to-earnings multiple to assign.
Apple tends to correlate very highly to EPS using our Profits vs Price� analysis. Often there are period of over shooting and under shooting, which was one of the reasons we downgraded Apple back in August. We are now on the opposite side of this spectrum. Sentiment in Apple is obviously overly negative. There are 381 companies in the S&P 500 that are more expensive on a P/E basis for 2013. Whatever your EPS estimates are, $37 would assume that the Apple thesis is broken and sales for the iPhone would come in at �60 Million for the year. Considering that in 2012, there were 125 Million iPhones sold, we see this as another emotional sell off with an excellent risk/reward tradeoff.
Balter’s note yesterday is a follow-up to the piece he put out December 5th, when he raised Apple to a Strong Buy based on a 10-year valuation low.
Apple stock that afternoon recovered from early losses, when it hit a low of $501.23, and closed up $9.04, or 1.8%, at $518.83.
Balter provides the following chart of what he’s seeing in the price relative to earnings:
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