Why Have Apple Shares Jumped this Morning?

Apple (NASDAQ:AAPL) shares have been consistently downtrending lately, reaching a YTD low yesterday at $315.32 a share, leading some to think that Apple shares might have been artificially high and overvalued. Apple stock has grown over the years as they continue to be on the cutting edge, introducing new products like the iPhone and the iPad. But when iPad 2 sales failed to impress, shares started to sink. But today Apple shares have already made a 2.57% jump and continue to rise. After the WWDC came and went earlier this month without any big announcements for revolutionary technology — unless you count iCloud, which I don’t — shares sunk even lower, so why the pop?

Apple has no plans to fully upgrade the iPhone, instead coming out with a modified iPhone 4s in the fall, with no news when iPhone 5 will be released. The new phone could temporarily boost sales, though not to the extent than an iPhone 5 would have done. Furthermore, smartphone makers like Research in Motion (NASDAQ:RIMM), Nokia (NYSE:NOK), and Microsoft (NASDAQ:MSFT) are catching up technologically and could pose competition. Apple might also experience a slight surge in the fall when students are drawn in to purchase MacBooks by back-to-school discounts. But none of that should explain why Apple shares have jumped today.

The real reason might be research-investment firm Morningstar (NASDAQ:MORN), which recently added Apple to its five-star stock list. Morningstar covers over 1,700 stocks and only 45 make the list. Morningstar notes that Apple, down 3.66% in the last month, is an attractive stock because it’s currently under-priced given that the company nearly doubled second quarter operating income and boosted sales 83%, astounding growth considering the company is already established and has a market value of $290 billion. iPhone revenue surged 126%, Mac revenue jumped 32%, iTunes revenue increased 23%, software sales were up 17%, and peripherals sales climbed 23%. The only area to decline was iPod sales as the company has spent more time focusing on software upgrades and the iPad while not making many advances with their mp3 players. And there’s no year-over-year comparison for the iPad yet, but it did make the company $2.3 billion in quarterly sales.

Morningstar notes that investors almost expect too much from Apple, with new product lines continually spurring on share prices, but the lack of any fancy new gadgets causing shares to drop, despite continued sales growth and increasing profitability. Generally failing to be recognized as a key player is Apple’s Mac business. Their desktops and laptops continue to outperform the competition, and Apple now has the largest market share for personal computers. Their recent move to sell the iPhone through Verizon (VZN) pushed sales figures up, and the iPad 2 has been stealing sales from PC makers like Hewlett-Packard (NYSE:HPQ).

With $66 billion of net cash and the likelihood Apple will outperform, Morningstar has given shares a fair-value target of $475, suggesting a 52% return.  And Morningstar isn’t the only one expecting Apple to continue to outperform. Piper Jaffray (NYSE:PJC) and Credit Suisse (NYSE:CS) both project figures upwards of $500, and an overwhelming 91% of researchers have given Apple positive reviews of “buy”, “outperform”, and “overweight”, making Apple’s stock the fourth highest rated in the benchmark S&P 500 Index. The company has an operating margin of 29%, putting it in the 99th percentile.

Improve Your 2011 Financial Health: Join the winning team of stock pickers with Wall St. Cheat Sheet’s acclaimed premium newsletter >>

More from The Cheat Sheet