The market was dead wrong on AppleAAPL -0.97% and that provides a big opportunity to make money and a level playing field for the small investor. Apple opened today at 616, up 56, and is undervalued. Its products are ubiquitous and widely understood and appreciated by the public. Even Warren Buffett could understand this technology company.
With the latest earnings taking the professionals completely by surprise, the small investor has the same advantage of knowledge as the professional. The small investor, at least for today, knows as much about Apple news as anybody on the Street.
All the analysts are busy re-working their numbers on the company, so using their currently published numbers is really being conservative. When I wrote an article back in October on APPL, the recent analyst 12-month targets were 550, and the high analyst target was 700.
Today, Finviz.com is showing the recent analyst targets at 650 to 740. Yahoo.com shows the high analyst target at 910. CNBC’s “Fast Money” has had one analyst on TV with a target of 1001. All of this before the gangbuster earnings just reported by Apple. Likewise, Nasdaq.com , using Zach's data, shows 32 out of 38 analysts have strong buys on AAPL with a consensus target of 710 and a high target of 910.
Prior to earnings, as of Friday when AAPL closed at 573,StockpickerUSA.com had AAPL as a 5-star (best) buy, just confirming what the rest of the world is saying. However, the breakdown of that rating shows some unique value-added data. The total score for AAPL is 5, where 3 is best and 30 is worst, thus almost a perfect score. The total of 5 consists of 3 for fundamentals, 1 for technicals and 1 for forecast data or first decile, top 10% for all companies with forecast data.
The technical score of 1, first decile is saying "buy on weakness." When price gets too high, it will move up to near 5, indicating you should wait for price to come down and a reading close to 1 for technical.
But the really unique aspect of StockpickerUSA.com is in the valuation grid, where it provides an undervalued/overvalued reading for any stock. Most growth stocks, like AAPL, will appear in the fairly valued box or the overvalued box. But when the market is inefficient, crazy things will happen, like AAPL being classified as 1.1 in value, the home run box of value stocks, not growth stocks.
This could happen briefly, on a big selloff for some exogenous reason such as the death of the founder/CEO. But once the company has shown survival, as with the current earnings report, price should go up and valuations should return to normal for a growth stock. That has not happened with APPL. It remains grossly undervalued due to an inefficient market.
But why was the market wrong, giving minor, technical sell signals, triggering stop-loss levels? Very simply, the sellers were big and the buyers were muted waiting for earnings. The only reason I can see for the selling of AAPL is risk management. Large institutions had to reduce their holdings after the big run-up in price, in order to reduce their total portfolio exposure to one stock, such as APPL.
Further, most institutions have the maximum amount of APPL in their portfolios, so very few of them can buy significantly more, and almost all of them have to sell to reduce their holdings and risk exposure to APPL. This technicality results in an inefficient market in pricing APPL stock. It will continue until AAPL splits its stock and allows the small investor to participate more fully in buying AAPL stock. (Or until AAPL has poor earnings and the price starts in a downtrend, which is highly unlikely here.)
The selloff before earnings shows the market is not capable of handling the necessary selling that takes place when a stock is widely owned by institutions, has a big run-up and risk management requires that the big institutions pare back on their now bloated holdings in Apple.
High share prices discourage the small investor, even when he wants to buy a stock like Apple. Indexing and ETFs discourage the small investor from investing in individual stocks.
Flash crashes, hedge funds and computer gaming and trading of the markets scare the investing public away. Despite all of this, the small investor wants to buy Apple and he will, but not in volume.
Finally, we have a stock that could bring the small investor back into the market. The market cannot be efficient, absent the small investor when it comes to institutionally over-owned stocks like AAPL. The continued selloffs in AAPL, despite its undervalued price, is proof positive that when the big institutions need to sell, just to manage risk, there are fewer buyers out there because the key component of any efficient market, the small investor, is missing. Isn't it time to encourage the small investor back to the market with a stock like Apple? LINK
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