Is iPhone 4s-Clad Apple’s Pull-Back a Buy Opportunity? - Stock Review

Apple's shares, first discussed here on Sept. 25, 2011, at a price of $403.17, have swooned along with a volatile stock market, down to $369, and the bears appear to be out in force.

Well, according to my analysis, there's going to be a bear raid soon, at least as it relates to Apple (AAPL), and I'm obviously Reiterating my Buy call.

In other words, view the current pull-back in the iPhone 4s-clad Apple's shares as a buying opportunity, if you can tolerate moderate risk.

I.E. words, Apple remains on sale, and now is the time to scoop-up share: I still expect Apple to hit $550 by mid-2012, boosted higher by a 30 percent increase in sales in FY2012, following a 66 percent jump in FY2011.

The iPhone 4s Wave

What's driving a lot of that revenue increase? Rthe iPhone 4S, a sensation, and it's one that bodes

The licensing of Apple's (AAPL) iPhone 4S in October, to Sprint (S), not only has the capacity to rejuvenate Sprint, but it also could spark an iPhone 4S wave in the cellphone service provider sector. That wave also bodes well for downloads - apps, music, movies and books.

In other words, a sector renaissance is occurring -- one that attracts new minds (translation: subscribers) that previously hadn't considered the iPhone 4S or even a smartphone, and one that bodes well for Apple's shares.

Most investors know that the past 10 years, and in particular the lost decade of 2001-2008, was difficult for investors, but there are always companies that manage to outperform competitors and shine, and the iPhone 4S-clad Apple is one of them.

Apple's shares closed Monday down $5.93 to $369.17, on a day when the Dow Jones Industrial Average fell 249 points to 11,547 on Europe / U.S. budget deficit concerns.

The iPhone 4S is also the last chance to buy a product developed by the late, great innovator, Steve Jobs. Simply, he was the Thomas Edison of our age and he left this life far too soon.

iPhone 4S-Boosted Revenues

As noted, look for Apple's FY2012 revenue to surge 30 percent -- boosted by the aforementioned iPhone 4S wave, and strong unit sales of the iPad and MacBook (Apple's name for laptops).

What's more, the above-mentioned robust sales trend means iTunes revenue will also increase at an impressive rate in fiscal 2012, as Apple's hardware sales lead to more downloads of apps, music and movies.

The lone negative in Apple's line-up? The iPod, whose market share will likely decline, due to market saturation and Apple's huge market share in the sector.

The Thomson Reuters First Call FY2012/FY2013 EPS estimates for Apple are $34.39 to $38.80, respectively. That FY2012 EPS estimate looks about 10 percent to 15 percent too low, and the FY2013 EPS estimate looks about 10 percent too low, according to my analysis.

Reuters also expects Apple to register FY2012 revenue of $138.4 billion, and FY2013 revenue of $160.4 billion.

Meanwhile, margins should total about 41 percent in fiscal 2012, as Apple ramps up iPhone and iPad production, benefits from economies of scale and eliminates inefficiencies detected in the ramping up process.

There's some concern among analysts regarding softer demand for desktops and laptops, but the iPhone 4S revenue stream will more than make up for it.

Also, Apple's cutting-edge design capabilities, product durability, marketing prowess and strong free cash flow can scare off only the lowest-risk investors.

Apple is that rare technology company you can buy for your kid's college fund and in 10 years, you'll be glad you did. That's a testament to its founder, Steve Jobs -- an American icon.

Technical Analysis: Technically, as noted Apple's shares have been hit by the recent U.S. stock market volatility, but what shares haven't been? The stock cycled between $325 and $360 for much of the first half of 2011, then vectored to $400 in the summer. A roughly (and healthy) 30 percent correction followed to about $360, before the stock retook the $400 level in September. There is some concern about Apple's shares dropping substantially below the key, 50-day moving average this autumn, but I like the uptrend from early summer. A sustained drop below $290 would be a concern, however. Apple's destination? Most likely, to $425 by the end of 2011, and to $550 by mid-2012.

What's more, Apple's P/E of 14 isn't low, but it's not stratospheric either, given the company's growth rate and potential, and if institutional investors ever sense that the global financial crisis is over, Apple may be granted a higher P/E. If the latter becomes a reality, Apple will venture higher in late 2012 to $600.

Stock Category: As noted, an iPhone 4s-clad Apple is an exception to the tech sector rule that argues against adding tech stocks to your kid's college fund. Apple is battle-tested and symbolizes U.S. innovation capabilities: its shares are headed north, assuming even sluggish 2012 U.S. GDP growth. However, consider Apple only if you have the patience to wait two years to realize a capital gain. There's also a 2 percent chance you'll lose your entire investment with Apple over a 10-year period.

2011 Outlook: I view Apple as a long-term play, but if you're looking to sell within the year, it's probably best to take your profits after it rises to between $450 and $475, if it fails to rise above $500.

Stock Analysis: Apple is a moderate-risk stock. If an investor has already purchased the company's shares, I'd hold them. If not, I'd consider buying a 50 percent position now; then buy another 50 percent in one month, if U.S. and global economic conditions don't worsen substantially. I'd put a sell/stop loss order at: $220.

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Disclosure: L.C. Jacobs of New York, N.Y. reviews stocks on a quarterly, semi-annual, and annual basis.

L.C. Jacobs has no positions in stocks reviewed, but does own federal, municipal, and corporate bonds.

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To contact L.C. Jacobs about this stock review, write to: stockreview@mail.com.

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