Apple Inc (AAPL)

[langostino]

joabe - their analysis

just reflects a value/valuation approach to investing capital, designed to help investors compare the universe of stocks where they could invest capital and determine relative merit -- not an attempt to predict what AAPL will do.

There are some people for whom the range of investing options seems to consist of one or two stocks they are extremely familiar with. But for most people it's just money/capital and they're trying to find a place to park it where they can buy something for less than they think it's worth, and given the 9,000+ stocks in the market, determine which one(s) offer them the greatest potential for appreciation. Morningstar's analyses are aimed at doing that.

If a DCF analysis tells you the cash flow generated by Procter & Gamble, given a certain assumed interest rate and risk premium equates to $40/shr and the market is pricing it at $50/shr at the moment, and the same formula evaluates Exxon Mobil and yields a fair valuation of $55, but the market is pricing the stock at $45, then you know which is the more favorable place to park your dough. Will P&G drop to $40? Maybe not. And if its earnings keep growing, it would be possible (in this hypothetical case) that the fair value might grow with the earnings to reach $50/shr a couple years later, and the stock might eventually reach "fair value" by simply moving sideways until the earnings "caught up".

If a stock is trading at a current price well above its fair value, then why would you allocate capital to it, or even leave capital invested there when there are other places where it could be invested with a more favorable relationship to fair value.

A good question to ask as an investor is what you'd do if someone came in and liquidated all your holdings tonight. Would you fire up the computer and place orders for the exact same holdings tomorrow a.m.?

With respect to AAPL ... if the stock is at $36, what odds would you put that the next $5 will be up as opposed to down. Most traders and investors, if they're going to risk capital, want those odds to be at least 2:1. I have a list of stocks where I believe the odds are 2:1 or better that the next 5 points are up rather than down. AAPL doesn't happen to be one of them.

p.s. I think the direct answer to your question is that Morningstar doesn't have an opinion about whether AAPL will go to their fair value calculation or not -- and it is precisely because their investing philosophy is that it's better to seek out favorable valuations and have faith that over time the market will eventually recognize it, than to try and predict and hope.