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Apple Stock Is Way Below Analysts’ Targets

After today’s roughly 3% declines, Apple (NASDAQ:AAPL) is at its lowest levels since January 2012.

A great post from Bespoke Investment Group explores how far Apple has fallen, particularly in respect to sky-high analyst price targets. The discount is more than 30% — the highest among the 100 largest stocks in the S&P 500 Index.

So is this a buying opportunity? Maybe. But remember that price targets can continue to drift lower, too, thus correcting this ratio by lowering the ceiling.

The current median price target from the “smart money” is $728, according to Bespoke. Thomson/First Call data shows similar readings with a $730 mean and a $745 median.

We have to throw out some outliers here, of course. I’m thinking particularly of the gimmicky $1,111 target from that yutz Brian White who’s just looking to make a name for himself. However, even among the more rational estimates, there still is a big premium priced in. Consider that just a week ago, Barclays moved its target down from $800 but still plots a price of $740 for Apple stock and rates it “overweight.” Before that, in December, RBC Capital moved its rating down to $725 from $750 but still rates AAPL “outperform.”

So while the targets are coming down, they remain significantly above current valuations. That’s a good sign.

Also consider that the margin between Apple’s current pricing and targets is massive compared with other large caps:

Natural gas plays like Devon Energy (NYSE:DVN) and Apache (NYSE:APA) are discounted almost 25%, as pricing for the commodity remains super low amid a glut of supply thanks to the fracking boom. Wall Street apparently thinks that environment can’t last forever and has set higher targets for these gas stocks despite current troubles.

Oil service stocks like National-Oilwell Varco (NYSE:NOV) and Anadarko Petroleum (NYSE:APC) also are trading at more than 20% discounts thanks to weak demand and apparently Wall Street analysts have faith that crude pricing and exploration will pick up in 2013.

But Apple is the biggest gap by a long shot. Just look at the table — especially the fact that it trades at a significantly bigger gap than Microsoft (NASDAQ:MSFT)!

Now, I’m not saying that analysts are always right. History is littered with bonehead calls by “experts” who revise their targets down after a big headline they never saw coming obliterates a stock. However, Apple is widely covered and has 49 brokers watching it as of right now. It’s possible the majority of them could be very, very wrong … but you have to at least note their point of view.

Furthermore, while analyst targets are frequently inflated, you have to question whether the gap is large enough to work in some wiggle room. For instance, if Apple goes up just 20% from here, it might never fulfill most targets — but that’s a hell of a gain for those individual investors looking for outperformance in 2013.

In full disclosure, I am an Apple shareholder, so some reluctance to admit defeat might be coloring my perspective. But I, for one, am encouraged by this massive gap because it shows a big move is in order — either significantly up for the stock, or significantly down in the forecasts.

I guess we will find out shortly which one. Apple reports earnings on Wednesday, Jan. 23.

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Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP. As of this writing, he held a long position in AAPL but none of the other stocks named here.

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