You’d Be Crazy To Not Own Apple (AAPL)

avatar By: IS
Date posted: 12.23.2011 (5:00 am) | Write a Comment  (8 Comments)

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I know, it’s the least original idea to be bullish on Apple. 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:

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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

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8 Comments »

  1. Comment by Stephen — December 23, 2011 @ 12:17 pm
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    I bought some Apple shares for about $109 a few years ago. I’m really tempted to sell it all. I wish they pay dividends though, that would make me want to keep them.

  2. Comment by Ken — December 23, 2011 @ 1:03 pm
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    In the short run, Steve jobs passing won’t matter. But in the long run, who is going to come up with the new inventions? There’s nobody at Apple with 1% of his abilities. That’s what really counts. In 5 years Apple will just be a run of the mill tech company.

  3. Comment by Andrew — December 23, 2011 @ 6:44 pm
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    Everyone’s favourite pick from Grandma to chief equity analysts is AAPL and had been for 3 years. While there is no way I would short this stock since it is valued very conservatively, what some are missing is the meteoric rise of Android devices and how this may eat into IPhones market share. The issue I see is that Apple is taking too long with its refresh cycles, while a plethora of Android phones become available almost every week, creating real competition for Apple in the mobile space.

  4. Comment by John Hunter — December 25, 2011 @ 5:54 pm
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    I agree, which is why I own it. The risk is that the huge run of great results reverses itself. But that risk is much less today than it was 10 years ago. Apple now has numerous very profitable businesses where the future looks bright: iPad, iPhone, app store, iTunes, macs… Even if a couple stumble they should do very well.

    And the stock price gives plenty of room for stumbles. If there are not any it will be extremely profitable and if there are it should be profitable. Major stumbles across numerous products are required for the stock to do poorly.

    It would be better if they started to pay dividends. It is too tempting for companies like them and Google to spend money foolishly when they have so many tens of billions lying around.

  5. Comment by Stock Income Method — December 27, 2011 @ 3:11 am
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    AAPL is a great stock to own because it is really cheap in valuation. However their is certain risk associate with Steve jobs passing. The problem with high tech stock is that the technology change rapidly so today’s hot stock may not be tomorrow’s hot stock.

  6. avatar

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  7. Comment by IS — January 15, 2012 @ 5:30 pm
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    @Stephen – On what basis would you sell them exactly? Still think it’s one of the best stocks you could own

    @Ken – Maybe true to some extent (I still do think other talented people would be there or love to work there) but even if that was true, seems like AAPL would still warrant a 10-12 P/E no?

    @Andrew – Yes and no. I honestly don’t think AAPL has really tried to compete with Android, it’s such a different market. It’s a concern yes but not a big one, AAPL still is gaining millions of new subscribers every year

    @John Hunter – very good point yes, I agree with you 100%

    @Stock Income Method – Maybe but I think Apple will be there for a while:)

  8. avatar

    [...] you are reading this, chances are that you don’t mind the Apple discussions too much:) As a very public believer in $AAPL‘s stock, I certainly [...]

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