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Looking for a contrarian Apple bet? Try the analysts

Apple is expected to announce, among other things, a revamp of its mobile iOS operating software at the WorldWide Developers Conference in San Francisco, starting Monday, June 10, 2013.

DADO RUVIC/REUTERS

Apple Inc.'s share price has been drifting between $420 (U.S.) and $460 for most of the year, leaving investors with a tough question: Has the stock bottomed out from last year's euphoria or has it merely paused before the next downward lurch?

Perhaps we're looking at the wrong indicator, though – and should instead focus on analyst coverage. In the case of Apple, that coverage is starting to shift in a big way, which should intrigue anyone who likes to make contrarian bets.

Bespoke Investment Group has set the scene. According to their figures (via Bloomberg), a record-high 68 analysts are now covering the stock, double the number over the past five years and up about 10-fold since 2000. That suggests that analysts are attracted to hot stocks.

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But the number of "buy" recommendations from them has been changing dramatically as the share price has cooled. Since hitting a high of $705 in September, the share price has fallen 38 per cent over concerns that Apple has lost its technological edge with existing products and has failed to ignite any optimism about upcoming products.

Right now, 75 per cent of analysts have a "buy" recommendation on the stock, according to Bespoke. While that's high relative to the stock market, it is low for Apple in recent years, when the number of "buy" recommendations has been as high as 94 per cent. Indeed, 75 per cent is the lowest level since the depths of the bear market in 2009.

Sliding target prices are also interesting. According to Bloomberg, the average 12-month price forecast has fallen to $534, down from $780 last autumn.

"The question now is how bearish do analysts need to get for the stock to become a contrarian play on the long side?" Bespoke asks.

They don't provide an answer. But here's a thought: Perhaps additional skepticism from analysts is the wrong signal to wait for. Now, with the share price well off its highs, investors should be waiting for a return of optimism. Rising target prices and a few more "buy" recommendations could signal that Apple is starting to attract some enthusiasm again.

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About the Author
Investing Reporter

David Berman has been writing about business and investing since 1995. He has written for a number of magazines, including Canadian Business and MoneySense. He worked at the Financial Post as an investing writer and daily columnist before moving to the Globe and Mail in 2008. More

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