David N. Frazier: Apple on Track to Hit $700 a Share After China Mobile Deal

Tuesday, 24 Dec 2013 07:35 AM

By David N. Frazier

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After bouncing off a price-support level of around $539 per share last Wednesday, Apple Inc. (AAPL) jumped Monday in response to the company’s announcement that it signed a deal with China Mobile — the world’s largest mobile telecommunications company — to begin offering its iPhone to China’s 1.4 billion consumers.

Specifically, Apple said that it entered into a multiyear agreement with China Mobile, which has 760 million customers, to offer its iPhone 5s and iPhone 5c to Chinese consumers via China Mobile’s expansive network of retail stores, as well as Apple’s retail stores, across mainland China beginning Jan.17, 2014.

In light of the fact that China Mobile controls approximately 65 percent of the mobile phone market in China, and that it grew its customer base by at least 60 million users during each of the past three years, Apple’s agreement with China Mobile appears to be a major coup.

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The deal looks as if it will enable Wall Street’s perennial darling to resume its long-term growth after Apple’s revenues slowed considerably and its net profit declined during the company’s fiscal year ended Sept. 30, 2013.

Meanwhile, Apple’s strong financial condition, and the company’s consistent ability to grow its cash flows from operating activities, places Apple in a position to continue to buy back substantial shares of its outstanding stock.

That’s a very significant factor, because any such purchases would enable Apple to grow its earnings per share at an even faster pace than the company is able to grow its net profits, as those profits would accrue to a smaller number of shareholders. (Note: During April 2013, Apple’s board of directors authorized the company to repurchase up to $60 billion of its stock. During the 12 months ended Sept. 30, 2013, the company had already bought back $22.9 billion of its stock).

With my research indicating that Apple will grow its earnings at an annualized rate of around 20 percent during the next three years, and its stock closing on December 23 at a price-to-earnings multiple (P/E Ratio) of only 14, Apple appears to be trading at a bargain price.

Investment legend Carl Icahn seems to agree with my thoughts, saying recently that he thinks Apple stock is “just extremely cheap.”

A proxy statement filed by Icahn earlier this month with the Securities and Exchange Commission shows that he’s putting his money where his mouth is, with Icahn and his partners owing 4,730,739 shares of Apple’s outstanding stock as of Dec. 4, 2013.

The economic outlook for China, the United States, and most other countries around the globe also bodes well for Apple, with numerous leading economic indicators suggesting that the pace of worldwide economic growth will increase during the year ahead.

If AAPL were to break above a key price-resistance level of around $570 — exactly where it closed on Monday — I would expect the stock to rally sharply during the weeks ahead.

With my research indicating that Apple could very feasibly rise to $700 per share within the next six months, I encourage those of you who are somewhat aggressive investors to monitor Apple stock very closely during the coming days.

Editor’s Note: Obama Donor Banned This Message (Shocking)

David N. Frazier has an extensive background in the investment securities industry and has invested in the financial markets for more than 25 years.

In addition to working as a business analyst, merchant banking analyst and equity research analyst, he’s held positions in sales and marketing at institutional investment firms, including William O’Neil & Co., TDAmeritrade, and Merrill Lynch.

David now serves as the President and Chief Market Strategist of Frazier & Mayer Research, LLC (dba www.TheMarketMonk.com), an independent investment research firm that provides research and analytical services to hedge funds, investment advisory firms, and other investment newsletters.


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