A better question might be; What is the risk once Apple hits its peak. The stock hit a new high today, trading around $645 per share. The three-year chart looks parabolic – increasing at an increasing rate. While Apple’s valuation is in the neighborhood of 15 times its trailing twelve months earnings, which isn’t terrible, but it’s in line with the expected growth rate for earnings. This means that, at least from an earnings per share valuation perspective, the stock is fairly valued. Fairly valued stocks can certainly continue to perform well in neutral or advancing markets, but typically get hit if the market corrects. To underscore this point, during the most recent 11% correction for the S&P 400, Apple lost 19% of its value during the same time-period – roughly twice as much. The stock also rebounded by about twice as much from the low of the correction until today. This tells me that Apple is roughly twice as volatile as the market, or, to put it another way, has about twice the downside risk on a percentage basis as the overall market.
As long as the overall market doesn’t correct, Apple could very well continue to advance. But, if I am correct about the overall market (and about Apple), and the market corrects shortly, we should see Apple lose about twice what the market loses on a percentage basis. I could easily see a 15% correction for the overall market, with the S&P 500 dropping as low as 1,200. That would mean that Apple should fall by as much as 30%, or by as much as 200 points, to about $450 or lower. Apple really doesn’t have meaningful support until we get down to $400, and that is where I believe Apple will eventually go. I would be a buyer at around $400, but probably not above that level, and I would sell it now (I sold my holding last week).