Apple is Still a Value Stock
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One more fiscal year is in the books at Apple (NASDAQ: AAPL), and the company kept right on growing. Revenue was up 45% from the last fiscal year. Sales did decelerate a bit, but topline growth in the fourth fiscal quarter was still an impressive- for such a large company- 27%. The company’s net income grew 61% for the year versus the previous year; again, results were not as good last quarter but earnings were up 24%. Apple has achieved these higher earnings as well as investing 40% more in research and development.
Apple’s stock price touched $700 in September but has since fallen close to $600; however, it is still up 47% year to date due to strong performance earlier in the year. This places it at 14 times trailing earnings. We could see lower growth rates in the next few years, but we’d certainly expect earnings to continue to come in higher. As a result, we continue to think that Apple is a good value.
Wall Street analyst consensus is for $50.46 in earnings per share in the current fiscal year (ending in September 2013), which would represent a 14% increase from this past year’s EPS. That decelerating- though still strong- growth brings the forward P/E multiple down to 12. Those fairly low multiples are attractive on their own, and are almost nonsensical in the context of double-digit earnings growth rates and Apple’s dominant brand.
Apple led our list of the ten most popular stocks among hedge funds in the second quarter of 2012 (see the full rankings). Tiger Cub Rob Citrone’s Discovery Capital Management and billionaire David Shaw’s D.E. Shaw were two funds which each had over $1 billion invested in Apple stock at the end of June according to their 13F filings. Discovery owned almost 2 million shares- Apple was the largest position in its 13F portfolio- and D.E. Shaw owned 1.8 million shares. Find more favorite stocks from Discovery Capital Management and from D.E. Shaw.
Google (NASDAQ: GOOG) and Microsoft (NASDAQ: MSFT) are Apple’s two closest peers. Google disappointed the market with its third quarter numbers, which showed a 20% decline in earnings from the third quarter of 2011. Revenue was up, however, and we expect that in the medium term Google will see increases in net income. At 21 times trailing earnings and 15 times forward earnings estimates, it’s not as good a value as we had previously thought and we’d hold off on taking a position for now. Microsoft also had earnings come in lower for the quarter; though this was likely partly due to customers delaying new purchases until the release of new versions of Windows and Office, there’s considerable uncertainty as to how well these products will sell. Windows 8 in particular has been criticized by some in the tech community. Microsoft carries a current-year P/E multiple of 10, but this is likely skewed upward due to the new product releases.
We would also compare Apple to Amazon.com (NASDAQ: AMZN), which is increasingly becoming a competitor in the tablet market as that company introduces more premium products as Apple in turn tries to offer smaller tablets to compete with the Kindle line, and to Research In Motion Limited (NASDAQ: BBRY). Amazon continues to trade at very high multiples, as it is barely profitable on a trailing basis but is still worth about $108 billion in the market. We’d much rather own Apple than Amazon. Research in Motion is supposed to lose money in the current fiscal year (ending in February 2013) as well as the following one. With revenue down 31% in its most recent quarter versus a year earlier, the company is very much in need of a turnaround and we wouldn’t be buying it for now.
We think that Apple is the best buy of its peers, and certainly better than Amazon or Research in Motion. However, we would watch Microsoft closely and possibly take advantage of its low multiples if we like what we see in Windows sales.
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This article is written by Matt Doiron and edited by Meena Krishnamsetty. Meena has long positions in Apple, Google, and Microsoft. The Motley Fool owns shares of Apple, Amazon.com, Google, and Microsoft. Motley Fool newsletter services recommend Apple, Amazon.com, Google, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.