Go to the Globe and Mail homepage

Jump to main navigationJump to main content

Apple
Apple

TheStreet

When should investors buy Apple? Add to ...

Apple shares hit $500 (U.S.) for the first time on Monday, as the iPhone maker pushes towards a $500-billion market cap, but should traders and investors take pause after Apple’s recent run-up?

It depends on your time-frame, according to a variety of traders and analysts.

Every stock has ebbs and flows, and Apple is no different, having soared 23.4 per cent year-to-date. This far outpaces the broader Nasdaq, which has returned 12 per cent. Competitors such as Research In Motion and Google have returned 4.9 per cent, and -5.4 per cent, respectively.

More related to this story

With rumours of a March iPad 3 launch swirling, and Apple expected to launch its new iPhone, and potentially, its TV offering later this year, investors are wondering how best to ride the Apple wave.

Apple’s stock has historically run up into major product launches, then sold off afterwards. In the two weeks after the launch of the iPhone 3G, iPhone 3GS, iPhone 4, and iPad 2, shares fell, 4.7 per cent, 3.6 per cent, 9.9 per cent, and 0.4 per cent, respectively.

Analysts, however, have faith in that Apple will continue its upward trajectory longer term. Noted Apple bulls such as Piper Jaffray’s Gene Munster, and Barclays Capital’s Ben Reitzes, for example, both have price targets meaningfully above where shares are currently trading.

Following Apple’s latest quarter, where it had over $46-billion in revenue, Munster raised his price target to $670, as he believes “the true force of the December quarter will be felt throughout calendar year 2012.” Munster went on to say, “We believe investors are missing the potential long-term upside of Apple’s current market expansion and future upgrade cycles.” He rates shares “overweight.”

Reitzes raised his price target to $630, as he believes “Apple’s valuation is attractive and that shares can continue to benefit from strong iPad & iPhone demand, Mac share gains, international expansion & new innovations. We believe Apple deserves a higher multiple versus the group given our view that it is the best growth story in IT hardware over the long term.”

On a shorter-time frame, however, Apple’s stock appears overbought, according to technical analysis used by traders. The Relative Strength Index, or RSI, a key short-term indicator, notes that Apple is running into technical resistance. The tech giant’s stock is rated around 85 on the RSI, which defines anything over 70 as overbought.

Leigh Drogen, CEO and co-founder of Estimize believes that traders should be worried about adding to their positions here. “You should be cautious adding to your position if the RSI is over 80, and it’s a complete red light over 95,” Drogen said over the phone.

Nonetheless, Apple is in a longer-term uptrend, and the recent uptick in shares has been done on strong volume, indicating institutional support behind the move.

If the market were to correct, the largest area of support would be $421 on a weekly chart, says Glenda Pagan, independent trader. “The stock broke out of this $421 area, and has gone parabolic since then. Stocks that go parabolic can stay parabolic for a long time.”

As Apple has crossed $500 today, which some believe is a key psychological level, few believe that there is more short-term room to the upside, and initiating a position would not offer a favourable risk-reward ratio. “If the market were to pull back, the minimum pullback area would be $470,” Pagan said.

Apple shares are currently trading up 1.55 per cent to $501.08.

In the know

Most popular videos »

Highlights

More from The Globe and Mail

Most popular