Why Apple is Still a Screaming Buy
Ryan is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Anyone who has any knowledge of the stock market has at least heard of or used the products of Apple (NASDAQ: AAPL). It is undoubtly one of the most watched stocks on the market, as it should be, as it is the largest company in the world. Coming in as having a value equal to nearly one 29th of the United States national debt, Apple may be well on its way to becoming the first trillion dollar company in the world. Yet since the death of the legendary founder of the company, Steve Jobs, many concerns have clouded investors minds.
Many believe Apple has lost is innovative edge that has made the company so special over the years. Most recently, during the 2012 WWDC, or Annual Developers Conference, there was no major new item that blew away the world and redefined the way people looked at a task. Instead there were just updates and upgrades for Apple's existing items such as the Macbook Pro. Additionally, fears of one of Apple's fastest growing regions, China, falling into sluggish growth has caused fear in the shareholders of the company. This fear was reaffirmed with the earnings releases of Nike (NYSE: NKE) and Ford (NYSE: F). Nike cited slower growth in China as one of the main drivers of its fourth quarter diluted earnings per share being down 6%. Ford, on the other hand, did not even see a glimmer of hope from the Asia-Pacific region, as it saw a decline of 14% in unit sales in the region. Despite these concerns, there are still numerous reasons to jump into Apple.
Despite the fact that no major products were revealed during this year's WWDC, Apple is still expected to release the iPhone 5 in the latter part of this year. That will undoubtedly be a huge source of revenue as the iPhone line has created $150 billion dollars in revenue for Apple. Additionally, the Apple iTV is expected to hit the market by the end of the year. This new product will prove to be a new and innovative item in this category, and create another huge revenue source for Apple. These new products are going to provide a new source of growth for Apple, fueling the stock's upward movement.
Apple is Cheap
Apple's price to earnings ratio is 14.29. The forward looking price to earnings ratio is 12.17. The S&P 500 price to earnings ratio is 15.67. Generally speaking, a growth stock is said to be fairly valued when its Price-to-Earnings Growth ratio is exactly 1. Apple's PEG ratio is 0.5. Furthermore, Apple is a fast growing company (rated the 21st fastest growing company by Fortune's Fastest Growing Companies), and is not credited for it. Usually, a lower price to earnings ratio indicates a slow growth company. From 2010 to 2011, its earnings per share grew 82.2%, and although the growth is expected to slow to 68.9% for the upcoming year, the company is still expanding at an admirable pace. Apple's combination of it's explosive growth and bargain price will both prove to be catalysts for the stock to make a move upward. Below is a forecast of Apple's book value per share and cash flow per share over the coming years, displaying Apple's explosive growth.
Dividend and Share Repurchase Program
Apple announced on March 19th of this year that it expects to spend $45 billion dollars on a dividend and share repurchase program during the next 3 years. The company plans to start paying out a quarterly dividend of $2.65 per share starting in the fourth quarter of this year, which begins July 1st of this year. That means Apple will start paying out $10.60 a year per share to its shareholders. At current prices that is a 1.81% dividend. Additionally, Apple will start a share repurchase program in the company's fiscal 2013 year. A company does not initiate a share repurchase program when it believes it's stock is overpriced, and who is better to take advice from than the guys running the company. Finally, it seems as if Apple will finally put its huge pile of cash to good use, rewarding the shareholders of the company.
The Foolish Bottom Line
Apple has climbed, and climbed, and climbed some more over the years, rewarding long term investors in the company with a 6,000%+ return over the last 10 years. Apple is not going to offer returns such as these to investors ten years from now, but still has strong fundamentals, and in my opinion is unfairly priced. Apple is the biggest company in the world, equalling nearly 6 and a half Walt Disney Companies, or nearly 8 and half United Technolgies Corporations, but still has several great years ahead of it, and is still a screaming buy.
makinmoney2424 has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple and Ford. Motley Fool newsletter services recommend Apple, Ford, and Nike. 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.