Why Apple Is Worth At Least $650

Chad is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Apple (NASDAQ: AAPL) what hasn't been said about this company? How about this approach, let's be honest. I've seen a lot of people catch grief for being "Apple fanboys" or "Apple fanatics" and at the end of this article I might get the same accusation, but I'm going to give you some facts.

Apple makes the #1 tablet. This isn't a discussion, the iPad 2 sells more then other tablets, period. There isn't another tablet that has the broad consumer appeal, wealth of apps and consistent design, OS, and branding that the iPad 2 does. Whether its technologically the best tablet doesn't matter. Customers are voting with their dollars and like it or not, they are buying iPad 2's more then other tablets.

Apple arguably makes the #1 smartphone. I understand that Android activates more phones than iOS, but that misses the point. The iPhone 4S sells like no one else. Think about it, name ONE model of any handset maker that sells more than the iPhone 4S. I'm not saying compare every Android phone that say Samsung sells I'm saying pick one single handset model and compare. The key is regardless of what Google says, Android is fragmented. If the customer has multiple experiences on different hardware that is the definition of fragmentation. So bottom line, not Samsung, not HTC, not Motorola, or others make ONE handset that outsells the iPhone.

Apple has gained significant market share in the desktop and laptop space. All you have to do is walk into any store that sells Apple and other products and see where more people crowd around. Granted a lot of people buy their computers online, but many people still buy their computers at a retailer. In addition Target and others have recently validated this point by considering an expanded "Apple Store" within their store. Oh, and the actual Apple Stores don't do to badly either.

So we have a leader in two of the hottest areas of technology, surely this same technology leader is selling at a premium right? Wrong.

Inexplicably Apple stock has the following numbers:

Current Price: $419.81
P/E based on '12 expected earnings: 11.99
Growth expected: 18.62%
PEG: 0.64

So #1 single smartphone brand, #1 single tablet brand, gained significant share in computers, oh there is this little thing called iTunes too and the stock is selling for just a little over half its growth rate? Apple has products already on the market that should easily get the company to analysts estimates for 2012 full year. I know they missed street earnings estimates last quarter, but over the last year the company has beaten earnings by an average of 16.82% a quarter. Are we seriously saying that a company with that kind of average beat is going to continue to miss? I don't think so.

The skeptics would say is Steve Jobs is gone and the company might lose its way. I think that misses the point that Steve was not the only person in the company involved in designing these hit products. Let's face it, right now Apple is on an every 6 month cycle for its two most popular products. The next iPad due out March or April, the next iPhone sometime around September or October. Apple doesn't have to invent anything else, if they keep upgrading these two products and keep the price points the same they will sell. In the meantime the iMac, Mac Mini, and Macbook Pro and Air lines get refreshed periodically while waiting for that next big thing. Many people have discussed the possibility of an Apple TV which I think is likely where that "next big thing" comes from. Given a fair valuation and a 1.0 PEG this stock is worth at least $650. That is nearly 55% higher than today's price, not sure why the market treats this Apple like it's rotten.


Motley Fool newsletter services recommend Apple. The Motley Fool owns shares of Apple. MHenage owns shares of Apple. 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.

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