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Apple (AAPL) Stock – Crazy Not to Own It?

I know, it’s the least original idea to be bullish on Apple (AAPL). Everyone is. The average analyst rating according to Bloomberg is 4.7 (out of 5). Only Google (GOOG) and Baidu (BIDU) score better and barely so. It just feels like I’m every day, thousands write about owning Apple. You’d think I’d want to stay away from the crowd right? How often does following everyone else turn out to be right? Very rarely, I’ll tell you that. Just look at gold these days. Seems like a few months ago, buying gold was the new “risk free” way to make money. These days, everyone is running for the exits…

Hear Me Out

I’m glad to see that you’ve kept on reading. I’m not trying to just be a “me too” guy over here. But Apple is dirt cheap and I think it’s crazy that the stock has not increased more. When I compare it to the other stocks that I follow, it comes out as one of the safest and undervalued investments. Rarely do those 2 words come together. Let’s look at a few numbers to start off. In the last 4 quarters, Apple has reported earnings per share of $27.67 and is trading at $400 or so… that is a trailing P/E of 14,5 or so. Very good right? Estimates are for the current P/E to be 13.81 and next year’s P/E to be just under 10, at 9.83.

Let’s take a look at all of the cheapest companies in terms of forward P/E (excluding Chinese companies which are a bit more complex) from the stocks that I follow:

StockPE RatioPE Next YearSales Growth
Research In Motion Ltd (RIMM)2.924.2433.13
Microsoft Corp (MSFT)9.468.3311.94
[b]Apple Inc (AAPL)13.819.8365.96
QuinStreet Inc (QNST)19.279.920.36
ValueClick Inc (VCLK)13.5510.081.91
Adobe Systems Inc (ADBE)16.5710.2810.95
Expedia Inc (EXPE)16.0312.8113.29
eBay Inc (EBAY)19.9812.884.91
Dice Holdings Inc (DHX)18.5713.0717.28
Monster Worldwide Inc (MWW)12.9713.750.99
[/b]

Tell me, is there any stock on this chart that even compares to Apple? Some might outperform without a doubt. But I would put all my chips on Apple if I had to choose. Just take a look at Apple’s revenues growth in recent quarters:



Is it recession proof? It’s not very far. Some might say that growth will slow down and they might turn out right (eventually they will) but even 10-20% growth would be a bargain at this price.

The Upside

The biggest thing about buying Apple is that not only is the downside very limited, but there is also significant upside. The mobile market continues to explode and I don’t think anyone would argue that the iPhone is losing momentum. It does face very stiff competition but things are still going strong for the Apple. Add to that the iPad which continues to see little to no competition in the tablet market.

2012 will see the launch of a new generation of iPad’s, perhaps a smaller version and will likely see the launch of the iPhone 5, all of which will certainly turn out to be huge winners. As if that wasn’t enough, Apple seems to be almost ready to officially launch Apple TV. Steve Jobs hinted in his last days that he had finally figured out tv and most analysts expect Apple to launch the product in 2013. Will it be a hit to the level of the ipad/ipod/iPhone? Perhaps but I don’t even think it needs to be THAT successful.

Steve Jobs Factor

Honestly, the only knock that I can see regarding Apple is the uncertainty created by the departure of Steve Jobs. That could certainly create issues but so far things do seem to be on pace and I think that if that is the knock against Apple, it is way overblown.

Are You Bullish On Apple?

I would love to hear from anyone that thinks I’m way off here. What would I be missing? If Apple is overvalued, what would you rather buy? Especially in the technology sector? In case you have missed that, if nothing crazy happens between now and the year end, Apple will be one of the first stocks that I will end up going long on when stocks picks resume in a few days.

Disclosure: No position on Apple


Rating: 3.8/5 (34 votes)

Comments

jcla71
Jcla71 - 2 years ago
AAPL's corporate governance is corrupt. To be sure, they have great products. But they have tons of cash laying around, but have not given back a penny to their shareholders via dividends or share buybacks. In addition, over the last decade, they have increased the outstanding share count via options issuance by 47%.

For AAPL to succeed, they have to constantly innovate. And who can say with any certainty that iPhones and iPads will be around ten years from now? Given the way they abuse shareholders, it's a rational decision to avoid this company.
cm1750
Cm1750 premium member - 2 years ago
Jcla71 has some good points - AAPL does not really have a recurring revenue stream.

But at today's valuation ex-cash, you are effectively assuming zero FCF growth forever.

The reason I bought AAPL (avg cost $360) was they are beginning to build a moat via the iCloud.

With iCloud, Apple users can now sync everything they have on Apple products so unless competitive products are far superior, current Apple customers will likely not switch.

These "switching costs" should enable Apple to at least maintain profits assuming decent products. Furthermore, an expected relationship with China Mobile in 2012 should enable growth in iPhone sales over the next few years.

The cash is a problem as Steve Jobs loved a cash balance. I assume within 1-2 years, you may see a share tender offer for 15% of the shares or the initiation of a dividend which will expand the shareholder base to include more value investors.
energywonk
Energywonk - 2 years ago
apple is losing smartphone marketshare to android at a rate of around 10%+/annum. ie last year they had in excess of 20% market share and this year depending on who you believe its less than 18%. android has gone from nothing to between 30-50% depending on which survey you believe. their closed approach is doomed to fail. i dont believe the icloud (which is years behind android) is widening their moat, they are playing catchup here. midrange android phones are now on par software and hardware wise with apple smarketphone devices. high end android devices are far superior in hardware terms. in both instances android phones are cheaper. apple has grown its desktop share and still rules the tablet space. i expect these marketshares to erode over the next few years too. they are suing competitors left and right. a sure fire sign they are failing to innovate and attempting to rentseek. you could argue they are at the height of their power and the only way is down from here. apparently there are 3-5 years of jobs ideas in the product pipeline so they can probably continue to innovate until about 2015 then its all over. i dont agree with the premise of this article at all. buffett teaches us that tech is a bad investment. jobs was unique, hes gone now. and you havent included intel in your P/E list this is pretty gross oversight considering the low P/E at present.
adamcz
Adamcz - 2 years ago
Which Guru is this news about?

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