By Dennis Slothower, Stealth Stocks

We have added Apple (AAPL) to our portfolio; at these levels the market is offering us a world leader for a below-market average price-to-earnings ratio of only 10 times trailing 12-month earnings.

Apple has a strong balance sheet; shareholder equity-to-total assets are at 0.65, meaning that every $1 of assets is backed by 65 cents of equity. Return on equity over the past 12 months is more than 38%.

Just a few months ago, AAPL was selling for $705 a share at a price-to-earnings ratio of 15. At that price, it was priced for perfection as the world's largest corporation and considered to be the world's premier growth company.

We could argue that the competition from Samsung (SSNLF) and Google (GOOG) is getting tougher, a global slowdown is taking a toll, the loss of Steve Jobs is being felt or just the combination of all these factors has caused the slope in profit growth to flatten and Apple has paid the price for it.

Capital gains taxes going up in 2013 also forced long-term investors to realize profits before taxes went higher, which also uniquely pressured AAPL at the end of 2012.

Consequently, after years of spectacular growth, investors began to sense a few months ago that Apple's profit growth was flattening out. The stock fell nearly 40% since September, dropping to $435 on January 25, giving up nearly all its gains for 2012.

Investors have discounted substantially the probability that Apple's quarterly profits will be flat on the year at $13.1 billion and that the annual outcome could be the first decline for a decade. Some are calling this the start of the demise of Apple.

I am not in that camp. Granted, Apple's slope of profit growth may be slowing for now, but it still made $41.7 billion in 2012, which is greater than the total size of the global music industry. Profits in the fourth quarter of 2012 were $13.1 billion.

It is true they were expecting $13.3 billion in profits, but Apple was discounted nearly 40% for this miss. However, rational investors need to ask what is the underlying worth of the business ... and at what price is the stock a screaming buy?

Apple has $135 billion of cash and no debt. If we back out the cash, Apple's business is now valued at $291 billion ($426 billion market cap minus $135 billion cash = $291 billion). Apple's net income was a little more than $41 billion for 2012.

Apple's cash on its balance sheet works out to $323 per share. At the current share price, that would value Apple's business at only 7 times earnings. It's not every day that such a dominant company as Apple trades at these valuations.

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