Should You Buy Apple?

Congressional inaction torpedoed several tech stocks yesterday. Research In Motion (Nasdaq: RIMM) fell 12.8%, Nokia (NYSE: NOK) declined 10.6%, and Dell (Nasdaq: DELL) shed 9.4%.

But for Apple (Nasdaq: AAPL), down 17.9% for the day, enemies were to be found on both K Street and Wall Street. Analysts at RBC Capital Markets and Morgan Stanley downgraded the iEmpire's shares amid reports of slowing growth, The Wall Street Journal reports.

Hi I'm a Mac and ... Hello? Is anyone there?
Morgan took the harsher stand of the two, saying in a report that Apple had reduced orders of Macs and iPhones from its manufacturing partners. Market tracker NPD, meanwhile, said that Mac sales growth slowed to 23% in August, down 20 points from 43% growth in July.

But is that as bad as it might seem? Maybe. Of the last 75 investors to make a call on Apple in CAPS -- all of which were entered this morning -- only 11, or 14.7%, say the stock will underperform the market. The good news is that's a pretty small ratio. The bad is that it's higher than Apple's prevailing bull-bear ratio -- behold:

Data current as of Sept. 30, 2008.

Apparently investors have soured on the stock somewhat. An 18% drop will do that. But, as a long-term investor, I still like Apple's valuation very, very much. Here's why.

Let's start at the balance sheet. Capital IQ shows Apple with roughly $20.8 billion, or $23.45 a share, in cash and investments. So, as of yesterday's close, more than 20% of the iEmpire's market value was denominated in liquid assets.

Doing the math -- $23.45 subtracted from $105.26 -- shows that Apple's earnings power was valued at just $81.81 per share, or 16 times trailing earnings. Contrast that with the S&P 500 SPDR (AMEX: SPY) exchange-traded fund, which sells for a shade more than 13 times trailing earnings. That's not much of a gulf.

Slowdown or no, Apple is a superior grower with superior products. Yesterday's downgrades, and the ensuing shellacking, were a huge overreaction.

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