The Apple Seeds Have Been Planted

Spencer is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Now that Apple's (NASDAQ: AAPL) stock has made a clear short term turn it is important to point out why the Apple seeds have been planted for a Spring harvest.  This has lot to do with Wal-mart (NYSE: WMT), Target (NYSE: TGT), and Best Buy (NYSE: BBY).  As many people know, one of Wal-mart's advertised Black Friday specials is the iPad 2 for $399 along with a $75 Wal-mart gift card.  Target and Best Buy have similar specials and advertisements.  This is important to note because Apple will indirectly receive substantial revenue from Wal-mart's iPad sales.  This revenue will subsequently show up on Apple's next quarterly report, and investors that take advantage of this now will be very happy over the next several months.

Some common arguments

The most common argument is that the availability of the iPad 3 and iPad Mini make buying an iPad 2 utterly useless.  And when you also consider Microsoft's (NASDAQ: MSFT) Surface or Samsung's Galaxy tablets, it appears the iPad 2 is outdated and outmatched.  This is a very good point, and I do agree to an extent, but the truth is we need to look at the socioeconomic status of Wal-mart's core shoppers.  Without being too disrespectful, the majority of Wal-mart shoppers come from the working class and do not have the luxury of buying an Apple product outside of the holidays.  When you take this into account, it becomes very clear that Wal-mart will sell out of iPad 2s this week.

Another common argument is that shoppers would much rather purchase the newer and cheaper iPad Mini.  Again, a good point, but, again Wal-mart's core shoppers do not have the luxury of purchasing a new Apple product every few months.  However, it is important to note that the iPad Mini is $70 less than Wal-mart's iPad 2' but after you factor in the $75 gift card, the iPad 2 is a better deal.  Not to mention the iPad 2's bigger screen is more useful for projects and apps.  Target is in a similar boat because shoppers received a $60 gift card with their iPad 2 purchase

Another important argument that can be made is the fact that the iPad 2 sells for $399 regularly at Wal-mart. So what is all the fuss about?  The difference is that Wal-mart has been advertising the iPad 2 with the gift card as an incentive, thus I am expecting to see them fly off the shelf.  In fact, it appears that this holiday season Wal-mart is attempting to liquidate their iPad 2 inventory in order to make way for newer versions.  I am confident this plan will work well.  In other words, Wal-mart's success will help Apple's stock price because Wal-mart will need to restock their inventories with the newer Apple tablets (iPad 3, iPad 4, and iPad Mini).

What about the stock price?

Apple's share price has been the center of discussion for quite a while.  And to be honest, Apple deserves to be talked about.  The share price increased 360 points in less than two years, with 220 of those points coming over the first four months of 2012. With that said, we consider it more important to discuss the future prospects of Apple's share price.

Apple's latest 33% rally from mid-May through mid-September took the stock over the psychological $700 barrier.  After that the share price fell to $525.  We are expecting - due in part to Wal-mart, Target, and Best Buy's liquidation and inventory stock up of new Apple products - to see Apple's share price return to the $700 level by the end of January and continue to move higher through the first quarter, and take a shot at the $800 level dependent on Apple's next earnings report.  To put this in perspective this would be a 50% rally from the $525 bottom.  This may sound unreasonable, but this is Apple, and Apple seems to find a way to surprise investors every quarter.

What to expect

In one final reiteration, we are expecting to see Wal-mart, Target, and Best Buy sell out of their iPad 2 inventory.  This will make room for these retail giants to stock up on new tablet models, and this is where Apple will make their money.  Dependent upon the accounting and payment methods of Wal-mart and Apple, it is very likely that Wal-mart has already paid for the iPad 2's to be sold.  Subsequently, Wal-mart will knock on Apple's door and purchase a truck load of new tablets that can be sold regularly in Wal-mart stores from here on out.  T

he big winner here will be Apple.  Wal-mart and Target, and to a lesser extent Best Buy, will simply continue business and grow as retail giants, but Apple hand will receive a greater amount of revenue than many analysts are expecting during this holiday quarter.


sbeefyk1 has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple, Best Buy, and Microsoft. Motley Fool newsletter services recommend Apple, Best Buy, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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