On Apple, investors remain cautious

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Tiernan Ray at Barron's has done a fine job of summarizing many of the analyst upgrades on Apple Inc. , following the company's blowout earnings report on Tuesday evening. From the looks of it, analysts are ecstatic, with an average price target – according to Bloomberg News – that is now $570 (U.S.). That suggests a gain of about 35 per cent in the next year.

There was just one recommendation upgrade on the stock, though that is hardly noteworthy: Analysts are already overwhelming bullish on the stock, with 50 "buy" recommendations versus just one "sell."

No doubt, there are a lot of reasons to feel upbeat about this company. In the fiscal first quarter of 2012, it reported earnings of $13.87 a share, or 37 per cent above analysts' expectations. The company's five-year earnings growth rate is an impressive 45 per cent, which is astounding when you consider that Apple is now the biggest company on the planet.

Meanwhile, it is sitting on a mountain of cash, approaching $100-billion, suggesting that it has a lot of options. Canaccord Genuity analyst Michael Walkley, who bumped up his target price to $650, believes that crossing the $100-billion cash threshold could even push Apple into announcing a dividend.

But what's really interesting about Apple is the ongoing ho-hum response from investors in response to this success. The stock was up about 7 per cent in early trading on Wednesday. That's a nice pop, of course, and one that takes the stock to a new record high. But it hardly reflects any sort of seismic shift in sentiment.

The stock trades at just 12.7-times estimated earnings and 11.5-times trailing earnings, which is the sort of low valuation reserved for lumbering, slow-growing companies – not dynamic technology companies with 45 per cent growth rates.

Investors are still cautious on this stock, and the reasons seem to change frequently. Not long ago, the deteriorating health of Steve Jobs hung over the stock – with many observers wondering if the company could innovate and thrive under the leadership of anyone else. (The bigger Mr. Jobs' role in Apple's success, the bigger the problem in replacing him.) However, Tuesday's first-quarter results were entirely the work of new chief executive, Tim Cook, so that concern seems to be melting away.

Now, the chief concern seems to have shifted to Apple's dominance of the tablet computer market and its big share in the smart phone market. Despite its enormous success, competition is heating up, with new products striking Apple where it is arguably most vulnerable: price.

The idea here is that, as good as things are for Apple right now, it could struggle in the future. One gets the feeling that Apple feels the same way, and is striving to come up with something new in case its former innovations lose some of their early gloss. An Apple television, which would incorporate a seductive big screen with all the bells and whistles of a computer and voice-activated controls, is touted as a likely next step.

But there are risks in any new product, despite Apple's pristine track record. And investors seem unlikely to give Apple the benefit of the doubt.