With the recent passing of Steve Jobs, investors (or potential investors) should take the opportunity to reassess Apple Corp. (AAPL, Financial) as both a company and an investment. Over the past decade or so, Apple has dominated the high-end consumer technical gadget markets like digital music players, cell phones and tablet computers. While there has always been low-cost competition but until recently, Apple never really seemed threatened. These days, Google Inc.’s (GOOG, Financial) Android phones are very competitive and are grabbing market share hand over fist. Amazon.com Inc. (AMZN, Financial) recently announced their low-cost Kindle Fire as an alternative to the much higher priced iPad. So the question is whether without Steve Jobs at the helm Apple can continue to excel as an investment.
Apple’s shares were recently trading around $385, giving the company a market capitalization of $355 billion. At that size, Apple is 75% bigger than Google, whose recent share price of $622 gives it a market cap of $201.4 billion. The baby of the bunch, relatively speaking, of course, is Amazon. Its shares were trading around $179 recently, giving it a market cap of $81.55 billion. While none of the three pay a dividend, all three do earn a nice profit.
Apple earned $27.68 per share over the past year, providing a P/E ratio of 13.86. By growing quarterly revenue by 39.0% over the past year, Apple has a PEG ratio of 0.59, indicating the shares are significantly undervalued. Google earned $29.34 over the last twelve months, giving it a P/E ratio of 21.23. Given its ability to grow revenue by 33.4% over the last year, its PEG ratio of 0.89, demonstrates that its shares are not as undervalued as those of Apple. While Amazon has grown quarterly revenue by 43.6% over the last year, it has earned just $1.90 per share. This gives it an eye-popping P/E ratio of 95.88. Not surprisingly, its PEG ratio is also on the high side at 5.90.
Now that the iPhone 4s has been successfully released, there are two significant issues facing investors in the near term — a revamped Apple TV and whether new CEO Tim Cook will begin paying a dividend. Obviously, both of these affect the long term view of Apple and thus need to be evaluated. One of Steve Jobs’ biggest wishes was to be able to simplify the television and the integration of consumer electronics. As has been reported in many sources, there is a line in his biography, written by Walter Issacson, where Jobs claimed to have “finally cracked it” while he was referring to the interface needed for such an easy integration. Apple-watchers put estimates that such a product could be launched as early as 2013.
Apple famously has almost $82 billion in cash and investments sitting on its balance sheet. This has caused investors to clamor for a dividend. While Steve Jobs was adamant about not paying a dividend, Tim Cook has said, “I’m not religious about holding cash or not holding it.” Analysts have taken this to mean that a dividend will be forthcoming during 2012. I believe if a dividend is issued, a 3% to 5% should be expected. At its current share price, that would yield each share between $11.46 and $19.10 per year.
One other thing that should be considered by anyone considering a new investment in Apple or re-evaluating an existing one is whether Jobs surrounded himself with capable people. Although his demanding personality was legendary, it would be impossible to think that those he demanded so much from would be unable to perform without his prodding. Until proven otherwise, the benefit of the doubt should be given to the employees who have followed and brought to life the vision of Steve Jobs with a remarkable level of success over the past decade.
With shares undervalued, the potential of a revamped Apple TV and the probability of the initiation of a new dividend, Apple appears to be a solid investment at this time. The company also has several intangible factors such as the fierce loyalty of its customers, who will continue to wait in line for hours in order to get the latest version of whatever Apple product has been upgraded. Throw in the creative employees and the story seems almost unbeatable. The only drawback to Apple shares is their actual cost. Buying a round lot of 100 shares would cost an investor $38,200 plus commissions. If that cost is prohibitive, an odd lot of a smaller size is certainly viable, as is trading call options. However, when trading options, the holder of the underlying shares gets to keep any potential dividends the company pays. Whatever method is ultimately chosen, shares of Apple represent a great investment at this price.
Apple’s shares were recently trading around $385, giving the company a market capitalization of $355 billion. At that size, Apple is 75% bigger than Google, whose recent share price of $622 gives it a market cap of $201.4 billion. The baby of the bunch, relatively speaking, of course, is Amazon. Its shares were trading around $179 recently, giving it a market cap of $81.55 billion. While none of the three pay a dividend, all three do earn a nice profit.
Apple earned $27.68 per share over the past year, providing a P/E ratio of 13.86. By growing quarterly revenue by 39.0% over the past year, Apple has a PEG ratio of 0.59, indicating the shares are significantly undervalued. Google earned $29.34 over the last twelve months, giving it a P/E ratio of 21.23. Given its ability to grow revenue by 33.4% over the last year, its PEG ratio of 0.89, demonstrates that its shares are not as undervalued as those of Apple. While Amazon has grown quarterly revenue by 43.6% over the last year, it has earned just $1.90 per share. This gives it an eye-popping P/E ratio of 95.88. Not surprisingly, its PEG ratio is also on the high side at 5.90.
Now that the iPhone 4s has been successfully released, there are two significant issues facing investors in the near term — a revamped Apple TV and whether new CEO Tim Cook will begin paying a dividend. Obviously, both of these affect the long term view of Apple and thus need to be evaluated. One of Steve Jobs’ biggest wishes was to be able to simplify the television and the integration of consumer electronics. As has been reported in many sources, there is a line in his biography, written by Walter Issacson, where Jobs claimed to have “finally cracked it” while he was referring to the interface needed for such an easy integration. Apple-watchers put estimates that such a product could be launched as early as 2013.
Apple famously has almost $82 billion in cash and investments sitting on its balance sheet. This has caused investors to clamor for a dividend. While Steve Jobs was adamant about not paying a dividend, Tim Cook has said, “I’m not religious about holding cash or not holding it.” Analysts have taken this to mean that a dividend will be forthcoming during 2012. I believe if a dividend is issued, a 3% to 5% should be expected. At its current share price, that would yield each share between $11.46 and $19.10 per year.
One other thing that should be considered by anyone considering a new investment in Apple or re-evaluating an existing one is whether Jobs surrounded himself with capable people. Although his demanding personality was legendary, it would be impossible to think that those he demanded so much from would be unable to perform without his prodding. Until proven otherwise, the benefit of the doubt should be given to the employees who have followed and brought to life the vision of Steve Jobs with a remarkable level of success over the past decade.
With shares undervalued, the potential of a revamped Apple TV and the probability of the initiation of a new dividend, Apple appears to be a solid investment at this time. The company also has several intangible factors such as the fierce loyalty of its customers, who will continue to wait in line for hours in order to get the latest version of whatever Apple product has been upgraded. Throw in the creative employees and the story seems almost unbeatable. The only drawback to Apple shares is their actual cost. Buying a round lot of 100 shares would cost an investor $38,200 plus commissions. If that cost is prohibitive, an odd lot of a smaller size is certainly viable, as is trading call options. However, when trading options, the holder of the underlying shares gets to keep any potential dividends the company pays. Whatever method is ultimately chosen, shares of Apple represent a great investment at this price.
