Apple At A Turning Point... Time To Buy?
The Dynamic Wealth Report
October 7, 2011
by Robert Morris, Editor
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.
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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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