Why Apple is Still a Great Company

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

Once upon a time, Apple (NASDAQ: AAPL) seemed unstoppable. But it wasn't always that way. If we pause to examine the past a bit, we’re reminded that Apple's history has been bumpy (to say the least).

Apple flourished for a moment in the 1980's, until Steve Jobs was fired from the company he co-founded. While he moved on with his life, creating companies like NeXT and Pixar, Apple sank into near-oblivion. When the company was at its brink, it recruited Jobs back. We all know how the story ends. (Heck, you’re probably reading this on an iPad). And this time, before he departed, he prepared the company to survive him.

What’s the moral of the story? Apple had its up’s and down’s, like so many companies do, and its always emerged stronger. So why are so many people worried about Apple’s recent drop in value?

As of Monday, Jan. 21, Apple is trading at $500 per share. That’s a severe decline from its high of $702 that it hit on Sept. 19. Needless to say, people are panicking. Some analysts are declaring that the Apple era is over.  They’re wrong.

My opinion is that Apple is the victim of its own success. Investors thought Apple was like home values in 2006: it could only go up! They over-inflated the cost of the stock. Now it’s suffering from a normal correction.

But the underlying factors that made Apple strong are still in place. Apple sells innovative technology. It has one of the strongest brands, and strongest “moats,” in the world. It has a dedicated, almost fanatical core consumer base. Its computers, smartphones and tablets remain in high-demand.

It’s also poised to grow in overseas markets in 2013, particularly China. CEO Tim Cook took his second trip to China as Apple’s CEO earlier this month. "China is currently our second largest market,” he told a Chinese television station while he was there. “I believe it will become our first. I believe strongly that it will."

Why the conviction? China Mobile is the largest mobile services provider in the world based on subscriber numbers, according to CNN. And guess what it doesn’t offer yet? The iPhone. Brace yourself for heavy overseas sales once Apple works out a deal with China Mobile.

Meanwhile, Apple is trading at a current trailing 12 month P/E of 11, which makes it a relative bargain in the tech world. Competitor Microsoft (NASDAQ: MSFT) has a ttm P/E of 14.7, and it doesn’t nearly have the market cap ($229 billion vs. Apple’s $470 billion) or the fan base that Apple does.

Disagree that Microsoft can still be called a competitor? Alright, let’s look at Google (NASDAQ: GOOG). It’s Android phone and tablet system is the nearest competitor to Apple’s iPhone and iPad line. Its market cap is similar to that of Microsoft, at $230 billion. It has a lot of growth potential, although its foray into the Chinese market will be met with some resistance from Baidu, China’s largest search engine. And its also relatively expensive, with a ttm P/E of 22.

Google, in other words, might be a good choice for growth investors but isn’t currently a strong choice for value investors. Apple is good for both growth and value investors.

So don’t let Apple’s recent stock-price drop scare you off. This is still a solid company with a strong future, and its shares are currently on sale.

 

 


PaulaPant owns shares of Apple and Google. The Motley Fool recommends Apple and Google. The Motley Fool owns shares of Apple, 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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