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How high will Apple shares climb?

Apple sees its stock price close above $400 for the first time, a nearly 60% gain since a year ago. But many analysts believe the stock's peak is still nowhere in sight.

July 27, 2011|By David Sarno, Los Angeles Times
  • A man and woman carry a Mac desktop computer they bought from the Apple store in Beijing in May. Apple says close to 15% of its quarterly earnings now come from China and surrounding countries.
A man and woman carry a Mac desktop computer they bought from the Apple store… (Liu Jin, AFP/Getty Images )

Apple Inc. seems to be defying gravity — at least on Wall Street.

Lifting its investors' fortunes further, Apple's stock rose $4.91, or 1.2%, to $403.41 on Tuesday, closing above $400 for the first time and marking a nearly 60% gain since a year ago. It put the company's $374-billion market value a close second behind Exxon Mobil Corp., the world's most valuable firm at $418 billion.

A decade ago, just before Apple's hit streak started with the October 2001 release of the first iPod music player, the company's stock was $10 a share. The stock's 4,000% increase since then far surpasses nearly every major technology company's 10-year performance, including Netflix Inc. (3,000%), Amazon.com Inc. (1,100%) and Google Inc. (474%).

But even as Apple breaks profit records and its stock price continues to hit all-time highs, many Wall Street analysts believe that its peak is still nowhere in sight. Nearly half of the 56 Apple analysts tracked by Bloomberg's financial database say they believe Apple's stock will reach at least $500 in the next 12 months, including several who say it will soar into the $600s.

Despite intense competition from smartphone and tablet makers, Apple last week said it sold more than 20 million iPhones and 9 million iPads in the three months ended in June, both quarterly records. The sales surge led the Cupertino, Calif., company to post a $7.3-billion profit, more than doubling its earnings from a year earlier.

Brian White, an analyst with Ticonderoga Securities, leads all analysts with a price target of $666 — a number he chose because of its lucky associations in China, not its unlucky ones in the West.

Apple said close to 15% of its quarterly earnings now come from China and surrounding countries. Like many analysts, White believes that China and its nearly 900 million mobile phone subscribers are key to Apple's future growth, along with the continued popularity of its iPhone, iPad tablet computer and Mac laptop line and the possibility that Apple will release its own Web-connected "smart" television set.

"If all those things come to fruition, people will look back and say the $666 price target was pretty conservative," White said. "I think Apple will be much bigger than people can imagine."

Investors point out that Apple's price-to-earnings ratio — a common metric used to evaluate whether its stock is overvalued or undervalued — is lower than many successful companies in other, more mature industries. Using that measurement, stocks of long-established firms like PepsiCo, Kraft Foods Inc. and Procter & Gamble Co. are all more expensive than Apple, a fact that investors believe means the company should be worth even more.

Still, despite Apple's history of hit products and recent string of financial milestones, few investors believe that its stock is a risk-free investment.

Among the first concerns cited by investors is the health of Steve Jobs, Apple's co-founder and chief executive. Jobs, who has been on an indefinite medical leave for nearly seven months, has long battled health issues. These include pancreatic cancer, for which he first had surgery in 2004, and later a liver transplant in 2008.

Jobs has made only rare appearances since January. For now, Apple is being run by Chief Operating Officer Tim Cook, who has a reputation for efficiency and deft oversight of the company's many moving parts.

"We believe [Cook] is at the center of Apple's CEO succession plan and the most likely candidate," said Gene Munster, an analyst with Piper Jaffray & Co., in a June note to investors.

Still, Cook is not generally considered a technology visionary of the same caliber as Jobs, who co-founded Apple 35 years ago at age 21 to market the first successful personal computer.

david.sarno@latimes.com

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