With Jobs’ Departure, Is Apple (AAPL, $376.18) Forbidden Fruit?

On July 20th I wrote How to Make Money in Apple (AAPL, $388.66) Stock. Now that Steve Jobs has resigned as CEO, let’s revisit whether investors and traders should buy, hold, or sell.

Since blowout earnings were reported in July, consensus projected earnings (EPS) growth has increased to a whopping 81% for fiscal year 2011, dropping the price earnings ratio (PE) to 13.7. What was then an undervalued growth stock just became a screaming buy.

Considering that the company has been functioning very well despite Mr. Jobs’ poor health and presumed lesser involvement in the company in recent years, it’s a good bet that his wisdom in hiring, planning and product development will continue to bear fruit at Apple Inc. for years to come.

“Key catalysts over the next six months include: 1) launch of Mac OS X Lion; 2) launch of iCloud (Fall 2011); 3) new iPhone with possible price cuts on older versions in September; 4)new iPad launch with possible price cut this Fall; and 5) improving component costs and manufacturing yields which put upward pressure on margins or at the very least offset the negative impact from revenue deferrals and lower iPhone/iPad prices.” – Morgan Stanley Research, July 20, 2011

That being said, is Apple a wise investment at this price, in this market?

As I wrote on July 20, “Apple stock has a pattern of steadily trading in a predictable range for six months, then launching upwards to new highs and establishing a new trading range, and then doing it again. The stock traded all year in the $330-$360 range, and now it’s in the ‘launching upward’ phase. Based on previous patterns, it’s too late to buy Apple below $360.”

“I know that some investors think that Apple’s price is ‘too high’. Those investors should read  The Relative Importance of Price Per Share, and then go back up the page here to the earnings and PE numbers. Apple stock is not over-priced by any normal valuation methodology.”

During August, the stock market correction settled Apple’s stock into a new trading range of roughly $355 – $400 per share. If the stock bounces again at $360, a trader could jump in and buy with the intention of selling this year around $400, for a 10% short-term profit. If I were a growth stock investor, I’d buy right now and not get my panties in a bunch about buying at the lowest possible price. If I already owned the stock, I would keep it and put in a stop loss order below the current trading range at $350.

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