Apple Stock in 2013: Hang On For Another Wild Ride

Following the dizzying ups and downs of 2012, investors may be hoping for a little less drama from Apple stock in 2013.

While 2013 figures to be a very different year for Apple Inc. (Nasdaq: AAPL), don't plan on the ride getting much smoother.

With 2012 annual revenue at $156.5 billion and annual profit at almost $42 billion, Apple's biggest challenge heading into 2013 is figuring out how to add meaningful growth.

For example, when Apple reports earnings on Jan. 24, you won't see a repeat of last year's incredible December quarter year-over-year revenue growth of 73% and profit growth of 118%.

Numbers like that helped launch Apple stock on a tear from just over $400 at the start of the year to $544 by March 1.

But this January Apple would need quarterly revenue of $80 billion and profits of $28.5 billion to duplicate that rate of growth. Not even Apple can do that.

If Apple meets current analyst expectations for its Q1 2013, it will have revenue growth of 18% and a 4% decline in profit. That's not the sort of year-over year performance that lights a fire under a stock.

Indeed, Apple stock throughout 2013 will face difficult year-over-year comparisons as each quarter goes up against 2012's record numbers. AAPL is now officially a victim of its own success.

And any hiccups along the way will surely ding Apple stock in 2013, as we've seen repeatedly over the past three months.

Here's a look at what could go right - and wrong - for Apple stock in 2013.

Negatives for Apple Stock in 2013

First, let's take a look at some issues that have dragged down AAPL over the past few months, and could continue to weigh down Apple stock in 2013:

  • Analyst Chatter: As we saw this past week, analyst downgrades are poison. While many other analysts reiterated their favorable view of the stock, Wall Street focused only on the negative reports. More such downgrades in 2013 would be a major drag on AAPL.
  • Bad Publicity: Apple was dogged throughout 2012 by reports of troubling labor issues in the Chinese factories where most of its products are assembled. In the fall it was hit by a management shake-up and a controversy over its flawed iPhone Maps app. If the stream of bad news continues in 2013, the stock will suffer.
  • Slowing Demand: A major worry for some analysts is that Apple is running out of well-heeled buyers of its pricey iPhones and iPads. Most of the untapped market for smartphones and tablets is among people with lower incomes, making them more likely to choose a cheaper alternative running Google Inc.'s (Nasdaq: GOOG) Android operating system. Apple already has lost some tablet market share to Android. And Android dominates among smartphones.
  • Better Competition: Apple's technological lead in mobile has shrunk since the iPhone debuted in 2007. So not only are most Android devices cheaper, many are of comparable quality to the iPhone. And a few, notably the Samsung Galaxy S III, have even leapfrogged the iPhone in some respects, such as screen size.
  • No Steve Jobs: When Steve Jobs passed away in October 2011, investors could take comfort in knowing that his uncanny vision had guided most of the products in the Apple pipeline. In 2013, we may start to see products that Jobs had no role in developing and that may not match customer expectations.

Positives for Apple Stock in 2013

Few should be surprised that Apple has an equally long list of positive factors pulling the stock in the opposite direction. That's a big reason for AAPL's volatility, especially recently.

Here's what Apple stock has going in its favor:

  • Strong Fundamentals: When AAPL slips below $530, its price/earnings ratio slips below 12, compared to an average of about 15 for stocks in the Standard & Poor's 500. That's also well below the multiples for some other big tech companies, such as Google (22). And its forward P/E is just 9. Plus, there's $121.3 billion in cash - nearly one quarter of the stock's value. And its dividend yield has risen to 2%.
  • Record Profits: Even with the pace of its growth slowing, Apple is still a monster money machine. Its revenue for 2012, for example, exceeded the revenue of Microsoft Inc. (Nasdaq: MSFT), Facebook Inc. (NYSE: FB) and Google - combined. Yet Apple will make even more money in 2013.
  • China: Concerns about the iPhone losing traction in China may be unfounded. The iPhone 5 sold 2 million units in its first weekend there, even without a partnership with the country's largest cellular provider, China Mobile. But Apple is thought to be on the verge of a deal with China Mobile, which one analyst estimates will add $45 to Apple's stock price over the next year.
  • Faster Product Cycles: After Apple updated most of its products this past fall, critics warned the company would have nothing new to offer in the first half of 2013, dampening sales. But recent evidence shows Apple is switching from once-a-year product updates to twice-a-year, as Money Morning suggested at the time. Now analysts are reporting that an iPhone update and a refreshed iPad Mini should both arrive by midyear if not sooner.
  • Apple TV: This long-rumored product should finally land in 2013, and it is expected to address what people hate about cable TV, such as the inability to pick which channels you pay for and confusing, awkward remotes and onscreen menus. If it is as disruptive as the iPod and iPhone, it will transform the TV industry and make billions for Apple.

Where Apple Stock (Nasdaq: AAPL) is Headed in 2013

With so much conflicting information, it's easy for investors to get confused.

One way to filter some of the noise is to look at analyst opinion in aggregate -- and it's still strongly bullish. According to Thomson/First Call, 22 analysts rate Apple stock a "Strong Buy" and 28 a "Buy," while just 5 rate it a "Hold" with one each for "Underperform" and "Sell."

What's more, their average one-year target price of $743.60 is $40 above the all-time high and a 40% gain over the current price of about $530.

When you consider how much Apple is driven by sentiment - in both directions - its extreme moves make sense. So at its high of $702.10 AAPL was ahead of itself, but below $500, or even $600, Apple stock is obviously oversold.

"What's amazing to me is how cheap this stock has gotten," said Business Insider CEO and Editor in Chief Henry Blodgett in a video conversation Monday on The Daily Ticker. "It's trading like it's not going to grow from here, or its going to shrink. [But] in most of their markets, they have growth."

Apple stock closed down 1.42% today (Wednesday) to $526.31.

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