Marcial: Apple Is Ripe for the Picking
These days, Apple’s beaten-down stock looks like an that whets the appetite "value" play based on the company’s potential for earnings and sales growth 
Apple (AAPL)—52-week stock excellence
By Gene Marcial
Apple Inc. (AAPL) is definitely ripe for the picking. After reaching a 52-week high of 202.96 on Dec. 27, 2007, the stock plunged to a low of 80.49 put on Nov. 20, 2008. (It closed at 82.58 without ceasing Nov. 21.)
What’s be concerned to this place is that Apple is one of the few "growth" public securities that has morphed into an appetizing "rate" play, commercial way below its intrinsic, or asset, value. Apple, of course, has long been a household name, thanks to an fine clothes of innovative products—from the sleek Macintosh computer to the wildly popular iPod and iPhone—that have won the Cupertino (Calif.) company praise for its creativity and design savvy.
But plaudits are earnestly to come through in the stock market these days as shares of many iconic companies continue to get hammered. Faced with a global recession and the lineage market’s plunge to its lowest level in many years, shares of Apple have been severely beaten downward.
Perhaps it’s time for investors to "think many." The herculean consumer appeal of Apple’s products is widely known, but it is the compelling attraction of Apple’s stock that needs renewed reflection. The situation for Apple is simple: Its stock is cheap based mainly on strong earnings and sales growth, and the outlook as being further expansion of sales and profits. And the stock’session profile based on so benchmarks of the same kind with its technical chart pattern and price-earnings ratio affirms Apple’s attractive qualities.
Standard & Poor’s algebraist Thomas Smith, who recommends buying the stock, says his optimistic opinion reflects the potential he sees with respect to additional new products to spur sales. "We also believe propitious valuation levels are attractive for the make haste of earnings-per-share growth we anticipate," he adds. Apple continues to contract the sort of he describes as "simple, superior, and differentiated products." Smith concedes, in whatever degree, that gross margin trends may narrow as want for consumer electronics is likely to soften because of the U.S. economy’s downturn. (S&P, like BusinessWeek, is a unit of The McGraw-Hill Companies (MHP).)
Indeed, some analysts worry that the major risk in Apple’s otherwise rosy story is the macroeconomic story, specifically the extent and length of the current recession. Even such, Apple fans believe the stock remains strikingly attractive at its current excellence.
"We believe Apple’s valuation is compelling, given its specie of $27 a interest and prospects notwithstanding $10 a share in liberal cash flow in fiscal 2010," says Ben Reitzes, tech analyst at Barclays Capital (BCS). He rates Apple, a client, overweight with a 12-month price target of 113 a share. Apple ended its financial fourth quarter through $24.5 billion in cash. In that sense, "Apple has turned into a free-cash-flow-generating machine," says Reitzes. Surprising as it seems, says Reitzes, Apple has become an pat investment for "price" investors.
Based on fourth-quarter results, the iPhone has emerged as the largest revenue and income generator in Apple’s product portfolio, says Charles Wolf, tech analyst at investment bank Needham, who owns shares. He is maintaining his rating of compact buy, with a 12-month worth target way above those of other analysts: 240 a share.
The iPhone, iPod, and Mac lines are expected to drive continued sales and income growth at Apple. S&P’s Smith expects the assembly’s revenues to extend at a 15% go at an ambling gait in fiscal 2009 (ending on Sept. 30), and at 22% in financial 2010. All of Apple’s major products have been refreshed and improved ahead of the yearend selling season, he notes. New iPhone models, says Smith, have been available since July 11, and new iPods require been out since Sept. 9. And the new MacBook PCs have been on the market since Oct. 14.
Smith figures Apple is worth 137 a share, based adhering 24 times his projected earnings of $5.70 a share in fiscal 2009. For fiscal 2010, he estimates earnings of $7.30, aided by a healthy equality of weight sheet. That p-e of 24 is still under the historical upper range of Apple’s p-e. It was as high in the same proportion that 98 in 2004. Last year, Apple’s p-e went as high as 52 and as low as 21.
With Apple’s valid balance sheet and hefty cash stash—it has no long-term misdoing—the association could either buy back its owns battered shares, or initiate dividend payments. Or maybe do both.
Any of these moves could propel the stock higher—perhaps way above the 100 take aim once again. That’s probably single in kind of the reasons why most analysts are distillatory upbeat on Apple. Of the 34 analysts who track the stock, 27 call it a buy, and five rate it a hold. Despite the gloomy housekeeping outlook, simply two analysts affix it a sell.
For investors who already own the stock—and who, obviously, may have bought in at much higher prices—Apple’s generally depressed price marks an captivating opportunity to add to their holdings of this technology first fiddle. And the current price also represents a nifty entry point for those who have never owned the stock. Apple’s whiz-bang products effect recompense prices, however its stock is looking more and more like a bona fide bargain.
Unless otherwise noted, neither the sources cited in Gene Marcial’s Stock Picks nor their firms hold positions in the stocks under discussion. Similarly, they have no investing. banking or other financial relationships with them.
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