Apple At A Turning Point… Time To Buy?

| October 7, 2011 | 0 Comments

We all knew it was coming.  His battle with cancer has been well documented by the media for several years.  But now that he’s gone, the sense of loss is no less palpable.

Of course, I’m talking about Steve Jobs.

The co-founder and former CEO of Apple (AAPL) died Wednesday at the age of 56.  In the blink of an eye, America has lost one of its greatest CEOs.  The world has lost a tremendous visionary and creative genius.

And Apple has lost the heart, soul, and driving force of the company.

But before he left, Jobs turned the once near-bankrupt company into one of the top technology firms and most recognizable brands on the planet. He was the mastermind behind Apple’s iPod, iPhone, iPad, iMac, and iTunes.  And he was viewed by Apple’s millions of cult-like customers as an almost god-like figure.

He also leaves behind millions of Apple shareholders who are much better off today thanks to his efforts.

When Jobs was brought back as CEO of Apple in 1997, the company’s stock was in the toilet.  Sales of Apple computers had plunged as customers opted for cheaper PCs running Microsoft Windows.  And the company had posted a shocking $1 billion loss.

Dell’s CEO Michael Dell even quipped his upstart computer company was going to drive Apple out of business.  And rumors of Apple’s impending bankruptcy were circulating like gossip at the local high school.

But we all know what happened next…

Jobs took over the company he started in his garage back in 1976 and began to reinvent it.  At the time, Apple’s stock price was close to what it traded for back in January of 1985 when Jobs was ousted by Apple’s board… around $3 per share.

On Wednesday, Apple shares closed at an astonishing $378.25… that’s a gain of over 11,200% in just 15 years!

But the question on everyone’s mind today is… can Apple continue its phenomenal run without its singular visionary at the helm?

The company’s new CEO is Apple’s former COO Tim Cook.  Jobs clearly believed Cook is the right man for the job.  After all, he handpicked Cook to succeed him.

But the jury’s still out on whether Cook can pick up where Jobs left off.

Whereas Jobs was known as a visionary and product design genius, Cook is better known as an operations expert.  His major accomplishment at Apple to date is transforming the company’s inventory management processes.

While important, inventory management is not in the same league as Jobs’ amazing legacy of product innovation.

Nevertheless, Cook is now responsible for steering Apple as it embarks on the next leg of its historic journey.  As Bloomberg so aptly put it, Cook “must take up the mantle of charting Apple’s creative vision.”

So, with Apple trading around $375 per share, is the stock a good buy?

Of course, the answer truly depends on Cook.  If he can prove he’s up to the challenge, Apple shares should continue climbing higher and higher.

But here’s the really amazing thing…

Despite the high stock price, the shares are undervalued on a fundamental basis.

Analysts are forecasting earnings of $27.70 in 2011 and $32.77 in 2012.  At the recent price of $375, Apple is trading at 13.5x the 2011 estimate and just 11.4x the 2012 estimate.

These multiples are below the industry average P/E of 19.2x.  And they’re well short of the projected annual earnings growth rate of 23% for the next five years.

For those of you who like PEG ratios (like me), that works out to a PEG of just 0.60.  In other words, Apple shares are trading at a 40% discount to their projected growth rate.

Based on these figures, Apple looks like a terrific bargain!

Again, if Cook and Apple can continue what Jobs started, it wouldn’t be a stretch for Apple shares to trade up to $500 per share.  Such a move would give you a 33% return from current levels.  What’s more, the company may soon tap its massive $76 billion in cash to start paying a healthy dividend.

Bottom line…

The shares have clearly made a huge move off the March 2009 lows.  Since then, the stock is up more than 350%.  But if you’ve been waiting for an opportunity to pick up Apple shares, this just might be the best one you’ll get for some time to come.

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Category: Stocks

About the Author ()

Robert Morris is the editor of Penny Stock All-Stars, an investment advisory focused on discovering small-cap and micro-cap stocks that are destined to become the market’s next Blue Chips. The Wall Street veteran and small-cap stock specialist is also a regular contributor to Penny Stock Research. Every week, Robert shares his thoughts with our readers on a variety of penny stock-related topics. In addition to Penny Stock Research, Robert also writes frequently for two other free financial e-letters, ETF Trading Research and the Dynamic Wealth Report. He’s also the editor of two highly successful and popular investment advisories, Biotech SuperTrader and China Stock Insider.

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