Apple looks like low-hanging fruit

Despite doubling in recent years, shares are a bargain by many metrics.

By TheStockAdvisors Dec 20, 2011 2:22PM
By Richard Moroney, Dow Theory Forecasts

Apple (AAPL) stock is cheap from nearly every angle. At 13.5 times trailing earnings, Apple hasn’t been this inexpensive in at least a decade.

The shares are trading 48% below their five-year average price-to-earnings ratio. Shares also trade below five-year averages for price to sales (17% discount), enterprise ratio (34% discount), price to operating cash flow (62% discount), and price to book value (29% discount).

Apple's attractive valuation is remarkable considering its shares have nearly doubled over the last two years.

But the stock has become listless in the past month. Proposed reasons for the slump abound, including Apple’s rare earnings miss in the September quarter, Thailand floods crimping supply channels, and new challengers in the tablet-computer market.

Apple's weakness could also hint at a changing perception among investors, who may believe Apple's best days of innovation are over. But we remain confident in Apple's growth story

Apple continues to churn out electronic devices beloved by millions. First-day orders for the iPhone 4S exceeded the iPhone 4’s initial release by 67%, topping one million units. The phone’s Siri speech-recognition software has become a particularly popular feature.

Long known for its consumer appeal, the company said more than 90% of Fortune 500 companies are testing or distributing iPads and iPhones for workers.

Apple seeks to bolster brand loyalty by streamlining a digital ecosystem among its products. Owners of Apple devices can synchronize media files to their various iPhones, iPads, and Macintosh computers. And for $25 per year, users can remotely access songs from their iTunes library.

All these factors should sustain Apple's operating momentum. The company has grown sales more than 30% in 10 straight quarters, and cash from operations rose 47% or more in each of the last eight quarters. 

Apple, notoriously tight with its money, holds more than $81 billion in net cash and marketable securities, or nearly $87 per share.

New CEO Tim Cook says Apple will remain prudent with its cash but doesn’t feel pressure to hoard it. "I'm religious about a lot of things but not that one," he said in October, leaving open the possibility of a dividend or share-buyback program.

For the fiscal year ending in September, Wall Street sees Apple delivering 25% higher per-share earnings. Yet Apple shares trade at less than 11 times year-ahead earnings, an 18% discount to the average for its peer group.

We recommend that investors scoop up its shares on the cheap. Apple is a Focus List 'buy.'

Related articles:

Tags: AAPL
0Comments

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

STOCK SCOUTER

StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

117
117 rated 1
280
280 rated 2
478
478 rated 3
656
656 rated 4
650
650 rated 5
640
640 rated 6
647
647 rated 7
482
482 rated 8
277
277 rated 9
126
126 rated 10
12345678910

Top Picks

SYMBOLNAMERATING
AAPLAPPLE Inc10
ATVIACTIVISION BLIZZARD Inc10
CTSHCOGNIZANT TECHNOLOGY SOLUTIONS10
FOXATWENTY-FIRST CENTURY FOX Inc CLASS A10
ITUBITAU UNIBANCO BANCO MULTIPLO S.A.10
More

VIDEO ON MSN MONEY

ABOUT

Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.