The article was written by Motek Moyen Research Seeking Alpha’s #1 Writer on Long Ideas and #2 in Technology – Senior Analyst at I Know First.

Apple Stock

Summary:

Shorting Apple is fraught with risks.

Tim Cook likes to do share buybacks whenever there is weakness in Apple’s stock price.

Investors should not focus too much on the iPhone business. Apple has other future products that will let it grow beyond its current iPhone-heavy revenue stream.

Apple is cheap compared to its Consumer Goods Sector peers.

I Know First Algorithmic forecast for AAPL is still bullish.

This is my answer to Mr. Leigh Drogen’s article asking whether it’s time to short Apple (AAPL). Instead of shorting AAPL, learned investors should go long on AAPL while it trades below $100. Compared to its Consumer Goods Sector peers, AAPL is undervalued because of its much lower Forward P/E of 10.87x. The sector average is 17.94x. This is in spite of the fact that Apple has much higher efficiency ratios on ROA, ROE, and ROI. Apple’s ROI of 28.3 is almost double that of the sector average of 15.02.

(Source: getaom.com)

Joining the sell-side against Apple is also a pretty risky act. Tim Cook has a habit of doing massive buybacks when there is weakness in Apple’s stock price. Apple has so much cash stashed abroad (more than $200 billion) that it can quickly get cheap nine-figure loans from U.S. banks to pummel down the shorts. Small retail investors who try shorting AAPL now could get squeezed by Tim Cook’s planned $20 billion buyback program for this year. Apple’s penchant for doing buybacks is the reason why short interest on the stock is just 1.11%.

Mr. Drogen’s insinuation to short Apple is for fearless traders only.

Apple’s weakness this year is the same situation back in Q1 2014. Back then Apple spent $14 billion over two weeks just to repurchase shares. That was Cook’s opportunistic move after Apple stock dropped 8% in early 2014. Apple’s little sin back then was that it reported lower-than-expected iPhone sales during its earnings report last January 28, 2014.

It is also hard to short AAPL when investing legends like Warren Buffett and David Einhorn are long on AAPL. The Buffett halo effect applies perfectly to a fundamentally strong company like Apple. From going below $90, AAPL’s price has recovered after Berkshire Hathaway disclosed its $1 billion long position on Apple last May 16.

(Source: Finbox.io)

The True Value Apple is Far Greater Than Its iPhone Business

Mr. Drogen short thesis speculated that Apple’s decision to increase the iPhone’s product cycle from two years to three years worsened Apple’s appeal in Wall Street. However, learned investors should realize the Apple’s future is not really hostage to the iPhone. Even though high-margin iPhones now contribute more than 60% of Apple’s revenue, Tim Cook is cooking up new products.

In spite Elon Musk’s skeptical view, I firmly believe that Apple will eventually release its own electric vehicle within the next five years. The many rumors about Apple’s Project Titan is like the timeline of rumors over the iPhone project. Apple bought the iphone.org domain name in 1999. The first iPhone came only in 2007. Apple has a slow product design pipeline. On the other hand, we all know that Apple always made billions of dollars by coming up with carefully thought-out products.

I am also confident that, unlike money-losing Tesla, Apple will be able to make tons of profit making and selling iOS-compatible electric cars. My faith in Project Titan is further enhanced by Apple’s recent move to create a dedicated Maps Development Center in India.

Apple is hiring 4,000 employees to improve its Maps app. Apple obviously wants a more accurate GPS navigation/traffic assistance app for Project Titan. Cook aims to match the Google Maps-fueled autonomous car project of Alphabet (GOOG). A more accurate and feature-filled Apple Maps could also help it create real-time localized ads like what Alphabet is doing with Google Maps and Waze.

Apple recently invested $1 billion in Didi’s on-demand taxi service in China. It’s not far-fetched to believe that future Apple Cars could be used to compete with Uber and Lyft. Apple is a die-hard practitioner of building proprietary ecosystems. It needs its own smart electric car that seamlessly work with its iOS platform.

Another product on the pipeline is Apple’s upcoming answer to Amazon’s (AMZN) Echo and Google Home. Apple has bought several companies with unique platforms/solutions for artificial intelligence, natural language processing, and facial recognition. Making intelligent speakers and other home appliances is going to be a future multi-bagger for Apple.

Apple’s brand power is so strong that it will easily get away with $499 versions of the $180 Amazon Echo. The superior quality and user friendliness of Macs, iPads, and iPhones made Apple a signature brand that affluent people consistently buys.

Conclusion

We should not short AAPL. We should not focus too much on quarterly iPhone sales when valuing Apple. This company has enough cash to quickly reinvent itself outside of its iPhone-maker reputation. With more than $200 billion in cash, Apple can afford to buy controlling stakes either in Oracle (ORCL), IBM (IBM), Intel (INTC), or Qualcomm (QCOM).

Let us trust the long-term plans of Tim Cook. The late Steve Jobs did not make a mistake when he anointed Cook as his successor. In spite of the negative YTD performance, AAPL is still up more than 85% since Jobs left us. My buy rating for AAPL right is now is supported by the still-positive algorithmic forecasts from I Know First. The positive short-term and long-term trend forecasts of I Know First clearly state that AAPL’s stock price has little chance of going down within the next 12 months.

I trust the machine-learning computers of I Know First.

I Know First Algorithm accurately predicted in the past the bullish Apple stock movement, shown in the Apple stock forecast below, from May 19th to June 2nd, 2016.

With a bullish signal of 21.36 and a predictability of 0.22, achieving a return of 3.34% in the period of 14 days.

My go long recommendation for Apple is also in line with the consensus Strong Buy recommendation at TipRanks. There are 32 Wall Street analysts that rates AAPL as a Buy. Only one analyst rates AAPL as a sell. The 12-month average price target of TipRanks analysts for Apple is $125.16.

I’m long AAPL. My own six-month price target for Apple is $115.