Apple (AAPL, $181.43) shares were upgraded this morning ahead of the bell by Morgan Stanley (MS, $40.59). Morgan raised its price target on Apple to $210 from $185 saying they expect iPhone sales to double in 2009 with the lowered $199 selling price.
The stock had a huge run in April from $140 to $180 but has been stuck in the $180s since then. When Apple announced the details of pricing and availability for the iPhone, the stock fell $13 in the following days afterward. Even news that Mac unit sales grew 50% on a year-over-year basis in May hasn’t help. So, despite analysts tripping over themselves to raise Apple’s price target (RBC Capital also upgraded Apple to Outperform and a $220 target), nothing has been able to power the stock beyond $190.
Apple may have been “overvalued” when it first hit $200 but that is not the case now. The big blow for the stock came in January when Apple provided lower earnings guidance. The stock started the year at $200 and hit a low of $117 by the first week of February.
In the big scheme of things, Apple has done well to recover from those lows. What investors are forgetting is that the same analysts who upgraded the stock were the ones who downgraded the stock back then and revised their price targets lower to the $150-175 range. Price targets are usually for 12 months but this is why I ignore them. As option traders we aren’t interested in the “buy-and-hold for years” stocks. We are interested in volatility and price action.
Apple is certainly volatile and is one of my favorite option chains to trade. However, the upgrade on Apple from Morgan was a way to take the focus off of Morgan’s own earnings which blew wind this morning.
Rick Rouse
Rick@OptionsMentoring.com
