Without rhyme or reason, investor sentiment can change direction like leaf being blown by a breeze. A company can be on top of the world one day with a soaring stock and bullish sentiment across the board. The next day, investors can get spooked by the most insignificant rumors and turn bearish, sending shares plunging lower. Long-term investors need to learn to deal with the seemingly random day-by-day gyrations of price.
When I first started stock investing with a long-term horizon, the ups and down of stock prices were difficult to deal with. I felt like a genius when my stocks would soar higher. At the same time, when a stock I had purchased plunged, I would get worried, angry and lose confidence in my decisions.
I learned a simple yet highly effective method of dealing with this emotional roller-coaster. Over time, I internalized the fact that price and value are two completely different things. This sounds obvious, but dealing with the truth is far different than intellectually understanding the words.
My start in the stock market was as a short-term/day trader. Short-term traders are concerned only with the price. A long-term investor should be concerned with value first, then price. Being focused on the true value of a company, rather than the daily price changes, keeps the emotions in check and allows for better investment decisions.
Remember, as a long-term investor, you should buy value. Value is what lifts price in the long-term despite the short-term price fluctuations that shake out investors who don't understand this concept.
One stock I believe is the embodiment of this idea is the venerable tech giant Apple (Nasdaq: AAPL).
Back in April, I wrote that as long as shares stay above the 200-week simple moving average, Apple remains a buy candidate with an 18-month target price of $550 to $575.
Well, that's exactly what is occurring right now. The stock dropped almost exactly to the 200-week simple moving average prior to bouncing higher since around the first of July. Shares are very close to taking out the $500 barrier on the daily close.
Many investors lost faith in Apple during the plunge. But investors who remained focused on value, rather than price, have been rewarded as Apple recovered its losses for the year. Investors who took the opportunity to buy shares during Apple's plunge and used simple technical timing tools have earned a tidy profit over the past 90 days.
Based on the changes since that article, I am raising my forecast on the tech giant to $700-plus within the next 12 months. In fact, I wouldn't be surprised to see shares push $1,000 within the next 36 months. Sure, there will be price gyrations during this time. However, as long as the price stays above the 200-week simple moving average, any drops can be viewed as buying opportunities. Here's why:
|1. Double Bottom On The Weekly Chart|
|Technical support, in the shape of a double bottom, developed on the weekly chart at the 200-week simple moving average. The price is now above the 50-week simple moving average. Technically, further upside to retest the $700 highs appears probable.|
|2. Smartphone Growth In Overdrive|
|Market research firm IDC projects a 40% increase in smartphone sales in 2014. This includes more than a billion smartphones and tablets being sold to emerging markets such as the BRIC nations (Brazil, Russia, India and China). Apple is in position to gain market share based on this growth, and the cheaper version of the iPhone 5 will surely help in these markets.|
|3. Respected Wall Street Firm Sets $777 Price Target|
| While I don't generally pay much attention to most Wall Street firm projections, Cantor Fitzgerald has initiated a "buy" recommendation and a $777 price target on Apple's shares. I have respect for Cantor Fitzgerald, and when its forecast supports my own research, if nothing else it raises confidence in my price targets.
|4. Huge China Deal|
|Apple is holding its first-ever media event in China on Sept. 11, a day after the new iPhones will be officially announced.
Rumors are that Apple will use this opportunity to announce the long-awaited deal with China Mobile (NYSE: CHL), which is the world's largest cellphone carrier with more than 700 million active users. Clearly, there are impediments in the way, but the potential for a lower-priced iPhone for this market means strong possibilities remain. This deal would be a major upside catalyst for Apple shares.
Risks to Consider: Now, don't get me wrong -- I'm not telling you to stick with a stock that you believe has value regardless of what happens to the price. Be certain to use basic technical tools such as the 200-day simple moving average to confirm your fundamental analysis. Should Apple's price break the 200-week simple moving average, then my bullish projection is void.
Action to Take --> I like Apple right now on a breakout close above $500 with a $700-plus 12-month target price.