Why Apple (Nasdaq: AAPL) Stock Hit $600 – And Will Go Higher in 2014

Powered by an earnings beat and a string of shareholder-friendly moves, Apple Inc. (Nasdaq: AAPL) stock breached $600 yesterday (Monday) for the first time since November 2012.

To be precise, AAPL closed at $600.96 Monday - and has hung close to that level today.

The sudden burst of optimism on Apple stock is a far cry from the situation a year ago, when many analysts were saying the Cupertino, Calif.-based tech giant had lost its mojo and AAPL hit a two-year low of $385 a share.

Wall Street has suddenly realized that Apple is more resilient than it thought, and that Chief Executive Officer Tim Cook - while not the visionary that the late Steve Jobs was - is nevertheless a leader capable of big surprises.

Now that AAPL stock has gotten back to the $600 milestone, the chatter will start about whether the stock can get back to its all-time high.

The short answer is yes, and it will almost certainly happen before the end of 2014.

Here's why.

How Apple Stock Got Back to $600

Let's start with the thoughts of Money Morning Capital Wave Strategist Shah Gilani, who went against the crowd last summer when he recommended AAPL as a buy on July 10. Investors who took Gilani's advice then are up 42% now.

AAPL
"Any company with the base of devoted customers Apple has, with the history of product innovation that AAPL has, and that has demonstrated an ability to manage a gigantic cash hoard with the deftness that Apple has shown us... well, that's a stock that I will buy and hold all day every day," Gilani said at the time.

It turns out that Gilani was prescient on several fronts. Now, with Apple stock at $600, he still thinks the shares can go higher - not only because a lot of the factors he saw driving AAPL last year are still in play, but because of several new catalysts as well.

Let's run through why AAPL has bounced back so strongly from those lows of last summer.

For one thing, at $400 or so Apple stock was undervalued. While growth had slowed, the company was still making more than $40 billion in profits a year and had some $150 billion in cash.

Then Cook started to add shareholder value by paying a dividend and launching the stock buyback program.

As for growth, Apple finally secured a deal with the largest Chinese telecom company, China Mobile Ltd. (NYSE ADR: CHL), at the end of last year. That gave Apple access to China Mobile's 760 million subscribers, seven times the customer base of U.S. telecom giant Verizon Inc. (NYSE: VZ).

All of those factors gradually pushed AAPL back to $500, first reached in August of last year. The stock got beyond $550 by the end of the year, but disappointing December quarter earnings pushed the price back down to $500 in late January.

Anxiety over the March quarter had AAPL drifting back down to about $520 - but then Tim Cook unleashed his barrage of surprises. He delivered a bigger buyback program, a higher dividend, a stunning 7-to-1 stock split, and, best of all, a big earnings beat.

A 17% increase in iPhone unit sales drove the earnings beat, and that rise in turn was mostly the result of stronger than expected sales in China. That was good news for the quarters ahead, because it showed the iPhone was finally picking up a head of steam in the vast Chinese smartphone market.

And it's just one reason Apple will make it back to its all-time high by the end of the year.

AAPL Stock Has Plenty of Catalysts Now

Suddenly, Apple stock has no shortage of catalysts. Take the stock split, for instance.

Technically speaking, a stock split adds no value. As an investor, you simply get more shares for your money. And for big investors, the split won't matter.

But for retail investors, the psychology of being able to buy AAPL at $85 a share instead of $600 will encourage more people to buy. The perception that Apple stock is "more affordable" will have an impact, even if only a slight one. And getting to $100 after the split somehow doesn't seem as daunting as getting to $700 now.

Another big catalyst over the coming months will be the iPhone 6, due out in the fall. While the iPhone 5s and iPhone 5c did not make a huge splash, the iPhone 6 will.

Apple's flagship product will get a major upgrade this year, with a larger screen among the key features. Other possibilities include a difficult-to-damage sapphire screen, weather-detecting sensors, and earbuds that can measure your heart rate.

Killer features like that will drive sales, particularly upgrades from previous iPhone models. Apple customers are notoriously loyal, and many are due for an upgrade.

According to Morgan Stanley (NYSE: MS), 56% of Verizon's iPhone customers and 42% of AT&T's (NYSE: T) iPhone customers in the United States are still using an iPhone 4 or iPhone 4s. If the iPhone 6 has the kind of wow factor many expect, it will set off a tremendous upgrade cycle.

And that's just in the United States. With China Mobile on board now, the iPhone 6 should help accelerate sales even further in that Asian nation.

Finally, Apple stock will get a big push from a major new product this year, most likely something in the wearable tech realm like the long-rumored iWatch.

Apple is clearly working on some kind of wearable tech device. The company has gone on a massive hiring spree, snapping up a number of experts in medical technology and sensor engineering over the past year.

What's more, Apple's spending on manufacturing equipment, product tooling, and marketing has nearly tripled in the past year. And spending on research and development is up 30%.

"The company is working on lots of products," Gilani said. "This stock is going to move."

What's your personal price target for AAPL stock? Do you think it will get back to its all-time high? Let us know on Twitter @moneymorning or Facebook.

The growing rivalry between the Xbox One and PlayStation 4 is becoming one of the biggest battles in tech today. But for investors, who wins and who loses this fight doesn't really matter. We've found a way to make money either way. And it's about as close to a "sure thing" as you'll find in tech investing...

About the Author

David Zeiler, Associate Editor for Money Morning at Money Map Press, has been a journalist for more than 35 years, including 18 spent at The Baltimore Sun. He has worked as a writer, editor, and page designer at different times in his career. He's interviewed a number of well-known personalities - ranging from punk rock icon Joey Ramone to Apple Inc. co-founder Steve Wozniak.

Over the course of his journalistic career, Dave has covered many diverse subjects. Since arriving at Money Morning in 2011, he has focused primarily on technology. He's an expert on both Apple and cryptocurrencies. He started writing about Apple for The Sun in the mid-1990s, and had an Apple blog on The Sun's web site from 2007-2009. Dave's been writing about Bitcoin since 2011 - long before most people had even heard of it. He even mined it for a short time.

Dave has a BA in English and Mass Communications from Loyola University Maryland.

Read full bio