How Can Apple (AAPL) Regain its Mojo?

February 5, 2013 12:14 PM EST
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Once the darling of Wall Street, these days it is difficult to mention Apple (NASDAQ: AAPL) stock without someone nearby getting nauseous. Prior to launching the iPhone 5, the stock climbed to record heights, but like sugar-high children, investors soon found out they were on the back half of the roller coaster facing a sickening dropping back to earth as the iPhone 5, earnings, and innovation all fell short of sky-high expectations.

The meteoric rise of Apple stock to $705 per share and its subsequent and dramatic fall from grace to $445 per share is a story for the history books, and that is where we'll leave it. The more important question relates to the path forward - for the stock, for Apple's stunned investor base, and for the company overall.

Apple's halo is clearly cracked from an investor perspective and the cheers have long since turned to jeers, making a mockery of many analysts and stock pundits alike. In what might be the understatement of the month, Stene Agee analyst Shaw Wu said today he thinks Apple is at a crossroads. You think?

"The big question we get from investors is whether the greatest turnaround and growth story of the past decade is over? Our answer is no but we do believe that AAPL needs to think different and change its strategy to regain its mojo," said the analyst.

Let's be fair. Like many other analysts, Wu failed to warn investors they were about enter the Apple-meat- grinder. He, like so many other analysts, maintained a Buy rating, starting at $300, right up to $700, and right back down to $465. When it comes to Apple, why would anyone believe Sterne Agee or any other analyst for that matter?

The short answer is they shouldn't. In fact, investors shouldn't take any analyst comment as the definitive word, but every opinion adds to the wealth of knowledge, and in this regard Wu's thoughts along with the thoughts of Piper Jafffray's Gene Munster and the other pundits are all valuable. Taken together a narrative can be created and an informed opinion can be created, with both sides of the argument weighed in equal. As a example, a number of analysts warned investors about component cuts for the iPhone 5 in the months leading up to the disappointing first quarter results. However, while the warnings are well documented, the analysts weren't prescient enough to cut their ratings before it was too late.

Back to the here and now, Wu thinks Apple needs to reclaim leadership at the high end of the market.

"What looked initially like a risky attempt by Android partners Samsung, HTC, Motorola, and others to differentiate against iPhone, in building larger touchscreen smartphones that many ridiculed as too big, ended up being a much bigger success than most expected," noted the analyst.

In order to reclaim its position as leader in high-end smart phones, Wu believes these are the kind of risks Apple needs to take. In other words, it is not enough anymore to simply be Apple. Tim Cook has to step up to the plate and swing for the fences. Until he does, the stock is likely to remain sickly, and investors left nauseous.

Wu thinks the iPad mini was a good start in Apple's attempt to reclaim its leadership. Other obvious changes could include iPhones with larger screens, which are already rumored to be in the works. The iTV is also heavily rumored. What else can Apple do? This ultimately will be left to Tim Cook and his well paid staff of designers and engineers. In the old days, investors wouldn't even have to question innovation at Apple. Times indeed have changed.

Wu has a Buy rating and $715 price target on Apple.

For an analyst ratings summary and ratings history on Apple click here. For more ratings news on Apple click here.

Shares of Apple closed at $442.32 yesterday.

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