A funny thing tends to happen with investor psychology when markets hit record highs. Most investors tend to “freak out.”
Do any of the underlying fundamentals really change when major indexes have surpassed previous highs? Of course not. But psychologically, there is often a big change among “the herd.”
Right now, the general consensus on Wall Street is getting much more cautious.
Only the U.S. Federal Reserve can do that with its policy on interest rates, and right now, that policy is extraordinarily hands-off.
Perhaps that’s why technology analyst Gene Munster (one of Wall Street’s most well-known Apple experts) recently gave Apple Inc. (NASDAQ: AAPL) a new price target of $350 per share in the next two years.
That Apple stock price prediction calls for 70% gains in just 24 months.
How is that possible when the company has been facing many challenges to future growth, including a slower economy in China?
For starters, Munster is bullish on 5G technology.
While Apple has been slow thus far to embrace 5G, the introduction of the new technology provides a reason for Apple users to upgrade their phones.
That upgrade cycle could be stronger than many expect over the next two years. It also puts a floor under Apple stock.
Most interestingly for Apple investors is the change Munster sees in how Apple is viewed by the market.
Specifically, Munster thinks of Apple more like a consumer staple, a company with products consumers can’t live without.
Think Coca-Cola Co. (NYSE: KO) and Clorox Co. (NYSE: CLX).
These are giant companies that can withstand whatever the future brings. Plus, these two examples also have much higher valuation multiples than Apple stock.
Coca-Cola, for example, trades for a price/earnings ratio (P/E) of 31. Clorox has a P/E of 26.
Where is the market multiple for Apple?
A puny 16.5 times earnings…
So the play for Apple stock, according to Munster, is clearly a case of P/E expansion.
Even if Apple only grows at a single-digit multiple going forward, a 20 multiple or higher results in a handsome return for those buying Apple shares today.
Don’t focus on the past and a lack of innovation from what was once a true innovator. Focus on the fact that consumers rely on Apply like they have never relied on the company before.
Munster goes further, suggesting that reliance results in an opportunity for the company to grow its services business.
And if you’ve been following along at Money Morning, you know that will be the biggest catalyst for the Apple stock price for years to come…
Why the Bullish Apple Stock Prediction Is Justified
While actual device sales may have peaked, the same cannot be said of Apple services.
It’s foolish to think that Apple will not be an innovator in the future. It most certainly will.
Those innovations will drive sales along with everything else that is favorable for the company today.
Money Morning Chief Investment Strategist Keith Fitzgerald doesn’t think Apple is concerned about the pace of phone sales.
According to Fitzgerald, the future for Apple will take place in the health industry.
Think wearable health devices.
That future is coming, and the market will be truly massive. By some estimates, the global health market is a $7 trillion opportunity. If Apple can take a tiny bite of that market, the stock could double in value.
I love the Apple story.
It reminds me of what the market thought of the company before the iPhone was launched.
At that time, the experts suggested innovation was dead.
Clearly, it was not.
The same thing is happening now.
The Apple Watch is not merely a miniaturization of the iPhone. The first models of the Apple Watch included sensors to monitor your physical activity.
Current versions of the watch are being designed to measure cardio activity.
This is a real game changer for Apple.
Because the market is misjudging the company, shares trade for a low valuation.
Combine the opinion of Munster and Fitzgerald, and it’s easy to see how Apple will double in value from current prices.
It happened previously, and I think it will happen again for Apple.
— Jamie Dlugosch
Source: Money Morning