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Apple, Google – Both Undervalued Stocks by the Numbers

December 23, 2011 | About:
Some questions just seem so far-fetched that they practically answer themselves. Is it really possible (or even plausible) to think that the stock of tech giants Apple (AAPL) or Google (GOOG) could be considered undervalued? Although Apple is trading for over $380 per share and Google for around $625, it actually takes some investigation to come up with answers that may surprise more than a few investors. Share price does not accurately portray the standing these leaders have or their ability to react positively, even in the currently unstable markets found worldwide.

Although Saxo Bank (with its prediction of a 50% drop in AAPL share price in 2012) seems to think otherwise, most analysts agree that the strength and momentum of these two powerhouse companies will carry them to continued success in 2012. Great metrics, market domination and incredible momentum are likely to keep both companies moving forward well into the future.

Apple Inc. – The $400 bargain

Apple's growth in share price and market cap at Apple has been nothing short of astounding. Selling for around $6 per share in 2003, the stock climbed to $80 in just three years, and sits at approximately $400 now, about five times its 2006 price. Once on the verge of collapse, Apple was insulted by rival Dell’s (DELL) CEO, Michael Dell in 1997, who said if he ran Apple, he would, "shut it down and give the money back to the shareholders." Nine years later, Apple’s market cap exceeded that of Dell, and today, it stands at an amazing $368.5 billion.

In spite of Job’s passing in 2011, Apple’s future looks incredibly bright. Declared by many analysts as the “most undervalued large-cap stock in America,” the company appears poised to make another move. Due to its strong growth, its impressive product offerings and swelling profits, the company's earnings have allowed it to consistently outpace competitors like Hewlett-Packard Company (HPQ) and Research In Motion Ltd. (RIMM) In 2011 alone, Apple recorded a year-over-year quarterly growth rate of 39%, while Hewlett-Packard dropped to -3.5% and Research In Motion stumbled by a troubling 9.8%. Apple’s P/E of 14.32 dwarfs that of HP at 7.66 and Research In Motion’s 2.52.

Looking ahead, Apple Inc. appears prepared to experience more success. Buoyed by upcoming releases of the iPad3 table and iPhone5 cellular, its 1-year target of $510 suggests upcoming growth. Using PEG to predict its future trend, it is possible to analyze the P/E of a stock against is annual EPS. Most experts who use the metric consider anything over 1.0 to indicate that a stock is overpriced. Apple currently stands at a scant 0.61 for its five-year estimate, while HP struggles at an unnerving 1.43. Of its usual list of competitors, only RIMM at -1.29 and Google at 0.73 join Apple as stocks that appears to be undervalued.

Value shopping for Google’s $625 stock

Much like Apple, Google has been overlooked as an investment by many people. Size, sustained growth and dominance of its market sector have all helped to push the share price up to the $625-$640 range. While it’s easy to dismiss a high-priced stock as having little room to grow, the numbers don’t suggest that is true for this Internet juggernaut.

Much like Apple and RIMM, Google's PEG suggests that the stock is under priced. With a current P/E of 21.33 and an EPS of 29.34, it flaunts a PEG of 0.73, well below the mean valuation line of 1.00. Neither AOL Inc. (AOL) nor Yahoo! Inc. (YHOO), two of Google’s biggest competitors, has fared very well. AOL's PEG is an unsettling 10.36, while Yahoo! appears to be overvalued as well, sneaking in at 1.48.

Beyond its PEG, Google has a number of other strong metrics, all suggesting that the stock is still a great value. While its competitors are experiencing negative year-to-year quarterly growth, (AOL at -5.8% and Yahoo! at -24%) Google continues to build on its strong performance. Over the past six months, the stock has continued to grow, with the low in each cycle outperforming the previous.

While the metrics confirm Google’s previous success, they indicate continued growth as well. In addition to its PEG, the company’s one-year target estimate indicates its climb still has legs. Google’s one-year target is just under $732, or almost a 15% increase over its current price; meanwhile, AOL is a little over 14% and Yahoo! at 11%. Simply put, the numbers support the fact that Google, like Apple, is an undervalued stock.

Looking for bargain amid the heavyweights

The value of a stock is a combination of share price and strength of the company within the market. Apple and Google continue to show investors stability in their sectors and a dedication to excellence that makes them leaders. This commitment is evident in their products and in their profitability.

As 2011 draws to a close, investors have a variety of places to look for values on the stock market. In spite of their higher share prices, tech giants Google and Apple are both primed to continue their runs, capitalizing on their technical success to register solid fundamentals in the investment market. When compared to their metrics, both companies are undervalued and appear to be excellent investments to consider for 2012.

About the author:

Investment Underground
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