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What's Up With Apple? Pros See Stock Climbing Towards $200

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Apple (AAPL) has been the most puzzling stock of the year, with its unusual lack of energy and pizzazz of late. In recent days, the stock with the globally widely acclaimed name has been languishing, mysteriously stuck at around $126- $127 a share while the Dow has climbed yet again to the 18,000 level.

Apple’s unusual lethargy is very much “un-Applelish,” grouses some of the perennial bulls.

But except for the very latecomers to the stock, Apple has been a sensational performer, if not a phenomenal achiever since 2009. The stock hit an all-time high of $133 a share early this year, way up from a 52-week low of $73.05. Yes, it was down that low not too long ago. But some long-term Apple bulls are convinced the stock will soar towards $200 a share over the next12 months.

Part of the stock’s recent malaise has been fueled by the rise in negative comments by several Apple critics in recent months, not a few warning that the stock has peaked. They cite a number of factors they consider as worrisome, such as the slow-growth they predict for iPad and iPhone sales in the year ahead, plus their dire prediction that the much awaited Apple Watch would prove to be a big loser.

But don’t be misled. Several close Apple watchers point out that the Apple Watch has exceeded expectations over the number of pre-orders for the new product. Trip Chowdhry, analyst at Global Equities Research, estimates 2.5 million pre-orders were posted on the weekend launch. Based on that estimate, he has boosted his price target for Apple to $176 a share from $165.

Even so, some Apple bulls aren’t counting on Apple Watch to produce a bonanza in earnings and revenues. There are a number of other factors for investors to stay ebullient on Apple’s continued growth prospects, they argue.

But investors shouldn’t make the mistake of minimizing what the Watch actually symbolizes. The Watch reflects the new direction the digital world is taking -- and the future space opportunity that Apple wants to dominate.

”We believe the Apple Watch will expand on the intimacy of hardware …. It’s the missing link to connect IoT applications to consumers,” says Andrew Uerkwitz, technology/emerging technologies and services analyst at Oppenheimer.

Rating Apple as “outperform,” Uerkwitz believes that in the next five years, “the Watch will revolutionize the way we interact with objects around us.” The analyst sees it as a digital “concierge” – the primary interface between users and a myriad of connected hardware devices that, he says, “consumers will add to their lives that will ultimately constitute their unique IoT ecosystems.”

Uerkwitz expects the Apple Watch to bring about major changes in the way people construct their digital experience. “Whereas smartphone will remain the center for computing, the Watch will emerge as the primary interface with connected devices,” the analyst says in a report to clients.

Indeed, Apple excels at human interface designs and in optimizing user experience. “We are long-term bullish on Apple’s prospects as we believe the company will lead in the next stage of personal computing,” says Uerkwitz. The Apple Watch plays a role in that development.

“In the near- term, continued share gains and an updated capital allocation story will outweigh potential disappointments in the early shipment numbers of the Watch,” says Uerkwitz.

Amit Daryanani, analyst at RBC Capital Markets, says that in the meantime, “we believe Apple Watch demand has been positive and could potentially provide upside surprise relative to current expectations.” He thinks it’s realistic for Apple to ship 3 million to 5 million units in the June quarter and 15 milllion-20 million units in the first 12 months of launch.

There are, to be sure. a number of other factors that justifies staying ebullient on Apple.

Wamsi Mohan, analyst at Bank of America Merrill Lynch, who continues to be bullish on the stock, says in a note to clients that, indeed, there are several reasons to be optimistic about the stock.

“We rate Apple as a buy on (1) strong iPhone product cycle, (2) development of new revenue sources like Apple Pay, Apple Watch, home/health kit, etc. and (3) optionality provided by a significant cash balance that can help accelerate innovation into new markets.”

Apple’s superior ecosystem and new product launches will be enough to sustain high iPhone customer retention rates, according to Angelo Zino, analyst at S&P Capital IQ. The Apple Watch, he believes, will see success over time.

“We are optimistic about the potential for Apple to expand its addressable market in the coming years,” says the analyst, even as he rates the stock as a hold. Zino views positively the company’s strong cash flow generation, and he believes the balance sheet “will be increasingly employed for dividends and stock repurchase, as well as M&A.”