Not Taking A Bite Out of This Apple (APPL)

Apple will report earnings after the bell on Monday October 19, 2009. Wall Street currently is expecting EPS to come in at $1.42 vs. $1.26 one year ago, expecting a growth rate in earnings of 12%. How can you not love Apple as a company? It's growth in the past decade has been tremendous under the leadership of Steve Jobs. Only problem, no matter how you put it, the company has some rich valuation attached to it.It would have been a wonderful buy in March 2009, a time when most stocks in the market were undervalued. I figured back then it was trading at 65 -70 cents on the dollar, I passed as I found plenty of companies trading at bigger discounts.


Apple Computer Inc. designs manufactures and markets personal computers and related personal computing and communicating solutions for sale primarily to education creative consumer and business customers. Apple Inc. has a market cap of $165.64 billion; its shares were traded at around $190.47 with a P/E ratio of 32.33 and P/S ratio of 5.1. Apple Inc. had an annual average earning growth of 90.5% over the past 5 years.

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Gurus' Positions with AAPL

Apple Inc. is owned by 9 Gurus. 2 Gurus Initiated Positions in AAPL: Daniel Loeb bought 150,000 shares in the quarter that ended on 06/30/2009, which is 2.38% of the $898 million portfolio of Third Point, LLC. George Soros bought 2,805 shares in the quarter that ended on 06/30/2009, which is 0.02% of the $2.61 billion portfolio of Soros Fund Management LLC. 1 Guru Increased Positions in AAPL: John Griffin owns 2,020,000 shares as of 06/30/2009, an increase of 75.65% from the previous quarter. This position accounts for 7.32% of the $3.93 billion portfolio of Blue Ridge Capital.


6 Gurus Kept Positions in AAPL Unchanged or Slightly Adjusted: Ron Baron owns 69,600 shares as of 06/30/2009, which accounts for 0.08% of the $11.99 billion portfolio of Baron Funds. Bill Nygren owns 270,000 shares as of 06/30/2009, which accounts for 1.49% of the $2.04 billion portfolio of Oak Mark Fund. PRIMECAP Management owns 46,000 shares as of 06/30/2009, which accounts for 0.01% of the $48.26 billion portfolio of PRIMECAP Management. Ruane Cunniff owns 2,030 shares as of 06/30/2009, which accounts for less than 0.01% of the $6.9 billion portfolio of Ruane & Cunniff & Goldfarb Inc. Lee Ainslie owns 1,743,470 shares as of 06/30/2009, which accounts for 3.85% of the $6.44 billion portfolio of Maverick Capital. Kenneth Fisher owns 165,664 shares as of 06/30/2009, which accounts for 0.1% of the $24.67 billion portfolio of Fisher Asset Management, LLC.


1 Guru Sold Out AAPL: John Hussman sold out his holdings in the quarter that ended on 06/30/2009.

Insiders' Positions with AAPL

• Sell:: Senior Vice President on 10/06/2009 Bertrand Serlet sold 10,000 shares of AAPL stock at the average price of 188.42, the price of the stock has increased by 1.09% since
• Sell:: Senior Vice President on 07/31/2009 Jonathan P Ive sold 27,713 shares of AAPL stock at the average price of 163.82, the price of the stock has increased by 16.27% since
• Sell:: Senior Vice President on 07/29/2009 Ronald B Johnson sold 250,000 shares of AAPL stock at the average price of 160, the price of the stock has increased by 19.04% since
• Sell:: Director on 07/27/2009 Millard S Drexler sold 40,000 shares of AAPL stock at the average price of 158.53, the price of the stock has increased by 20.15% since
• Sell:: Senior Vice President on 07/24/2009 Robert J Mansfield sold 40,000 shares of AAPL stock at the average price of 158.84, the price of the stock has increased by 19.91% since

Apple DCF Valuation


This is where it gets a bit tricky as Apple has been growing pretty quick. For one, I am using a 5 year DCF as competition is fierce in tech. While I have faith that Apple will be around in the next 10 years, looking beyond 5 years and estimating growth accurately is beyond my ability. Secondly, FCF has been growing at a pace in which I am not comfortable with. Take a look at the following chart from Gurufocus.





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So I used the the next best thing in my opinion, Cash Return On Invested Capital or CROIC, which measures how much cash our company can generate based on each dollar it invests into its operations. In Apple's case, it's about 15% (image below). This is a fair number to use for growth rate in the next 5 years as 1) its below growth rates in the recent past 2) I'm not comfortable with growth rates exceeding 15%.








Disclosure: No Position