Roundtable: Too Late to Buy Apple?

Did you do a double-take when you saw the news that Apple (Nasdaq: AAPL  ) surpassed Microsoft (Nasdaq: MSFT  ) in market value to become the new king of technology? You should have, because we're looking at one of the greatest corporate turnaround stories of all time.

With Apple now the largest technology company, have investors sitting on the sidelines missed all the gains to be had on the elevator ride up to the penthouse? Other titans of technology that sport huge competitive advantages, such as Oracle (Nasdaq: ORCL  ) , Intel (Nasdaq: INTC  ) , and IBM, all possess attractive-looking forward earnings multiples in the low double digits:

Company

Forward P/E Multiple (Next 12 months)

Apple

17.9

Google (Nasdaq: GOOG  )

17.4

Cisco Systems

13.7

Oracle Corp

12.4

Microsoft Corporation

11.7

Intel

11.4

International Business Machines

11.1

Hewlett-Packard

9.8

Source: Capital IQ, a division of Standard & Poor's.

Is it time for investors to shift their investing dollars over to these safer companies, even though they offer less growth potential? Or does Apple's upside keep it atop the pack? With the iPhone booming in international markets, and the iPad selling more than 2 million units in less than 60 days, there's ample evidence that Apple's growth story is just getting started.

With that in mind, we asked three of our Fool analysts one simple question: Is it too late to buy Apple?

Rick Munarriz, Motley Fool Rule Breakers analyst/writer: For Apple, I think this is just the beginning. One can't deny that Apple will be more relevant in the future. The iPhone is just in its infancy abroad, and the smartphone sky will be the limit once Apple realizes that it has outgrown its AT&T  (NYSE: T  ) domestic exclusivity. The iPad is a hit, and it's just getting started. Last month, my son's school sent parents a survey, gauging our opinion on replacing textbooks with iPads. Wow!

MacBooks are also selling briskly, and they still represent just a small fraction of the personal computing space. There is a clear path to serious upside in nearly all of Apple's lines. The iPod may be the only juggernaut that's peaking, but it's being replaced by bigger-ticket iTunes and App Store magnets such as the iPhone and iPod touch.

Despite Apple's heady gains in recent years, the shares aren't expensive. Did you know that Apple is trading for just 17 times next fiscal year's projected profitability? There certainly are cheaper values in tech, but they're also laggards relative to the class of Cupertino. One also has to consider that the company routinely spanks Wall Street's estimates. No matter where the analysts are perched now, Apple will find a way to land higher.

Tim Beyers, Rule Breakers analyst/writer: Let's set aside the hyperbole for a moment. Cats and dogs aren't living together, red wine still doesn't go with fish, the Lost finale wasn't a bad dream, and Congress is still inept. So what if Apple has passed Microsoft? That could change again at any moment, and Google could still topple them both.

Yet I still like Apple at these levels, and not just because of Europe's apparently voracious appetite for the iPad. At roughly $253 a share, the Mac maker is trading roughly in line with its expected earnings growth heading into fiscal 2011.

We can assume that iPad sales factor into Wall Street's projections, but we're also at the very beginning of the cycle. We don't really know what sort of earnings catalyst Apple's e-reader will be, but for the moment, it's fair to assume it's going to be big. Every major newspaper and magazine publisher is talking up new iPad apps, while News Corp.'s (Nasdaq: NWS  ) Rupert Murdoch acts as if the device is the newspaper industry's messiah.

He could have a point. In a recent survey of new iPad owners, ChangeWave research found that half of the device's owners (50%) read newspapers on their tablet device, compared to just 14% of all other e-reader owners. Similarly, 38% of iPad owners read magazines on the device, versus 11% of those who own competing e-readers. My well-documented doubts notwithstanding, Apple may have created a transformative device for content consumption.

Combine the growing body of evidence of the iPad's success with Apple's reasonable multiple, and I'd be a buyer of the company's shares -- if I weren't already an owner.

Anders Bylund, Fool.com writer: A few months ago, I named Apple as the worst stock to own in 2010. So far, Jobs and company have thrashed the overall market and every major rival, and I'm way out on the losing side of that bet. Congratulations, Apple shareholders. You now own the second-most valuable American company on the market.

Still, maybe it's time to cash in your profits and look elsewhere. This is getting ridiculous.

Apple's prospects still don't justify a share price built on dreams and empty calories. Assuming that everything works out just right for Apple over the next five years, analysts see 16.5% earnings growth per year. Using that data -- which I believe to be insanely liberal -- along with $12.2 billion of free cash flow generated in the last four quarters, a discounted cash flow calculation indicates that the stock is as much as 25% undervalued. Sounds like an awesome deal, right?

However, that's making a lot of favorable assumptions, and they can go wrong in a lot of ways. For example, the iPhone was a first mover in the smartphone market, and it also benefits from an army of loyal brand fans. In a flood of equally potent (and maybe even better) phones running the Google Android software, those early advantages will soon evaporate. Can its current growth continue once the iPhone is exposed as just another decent handset with plenty of alternatives? I don't think so. And that's just one of many risk factors.

Keep your shares until after Apple's Worldwide Developer Conference if you must, because nothing pumps the stock like Steve Jobs on stage in a black turtleneck. But then you'd best get out of this cult of personality.

What are your thoughts on Apple's future? Will you still be buying at today's prices? Discuss in the comments area below!

Tim Beyers owns stock and options positions in Apple and stock positions in IBM, and Oracle. Anders Bylund owns shares of Google. Intel and Microsoft are Motley Fool Inside Value recommendations. Google is a Motley Fool Rule Breakers choice. Apple is a Motley Fool Stock Advisor recommendation. The Fool has created a covered strangle position on Intel. The Fool owns shares of and has written puts on Oracle. Motley Fool Options has recommended buying calls on Intel. Motley Fool Options has recommended a diagonal call position on Microsoft. Try any of our Foolish newsletters today, free for 30 days. The Motley Fool has a disclosure policy.


Read/Post Comments (21) | Recommend This Article (53)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 01, 2010, at 11:01 AM, Turfscape wrote:

    Anders, you need to take the emotion out of your analysis. Your bearish attitude towards Apple has never been supported by the data. You constantly scream "doom" when all indicators point to continued growth and profitability. I don't believe in AAPL $400, but $270 - $300 is not unsupportable given all the current data and trend forecasts.

  • Report this Comment On June 01, 2010, at 11:03 AM, wasmick wrote:

    Of course Apple will continue to go up for ever and ever and ever.

    The iPad just passed 2 million units sold and I'm posting this from a line outside the Apple store where we are all patiently waiting to be the first on in our neighborhoods to over pay for Apple TV in 2015. It's worth it.

    Let's face it, everything Steve Jobs has touched turns to gold (except for the failures). And once he gets the surgeons to open his abdomen for him, he'll lay his own hands on his pancreas, cure it and live forever. Then he'll invent another version of an existing device so that us first adopters can throw out the old device and buy the new, better, cooler one. Of course sales of this new device will break all sales records of anything ever sold anywhere.

    Anyone who says different is just a hater.

  • Report this Comment On June 01, 2010, at 11:38 AM, Turfscape wrote:

    wasmick wrote:"Anyone who says different is just a hater."

    So, any explanation for Apple's sales figures? Or is it all just an illusion? Did Apple not actually sell 50 million iPhones? Did Apple not actually sell 2 million iPads?

    If you don't like Apple products, fine. But you can't argue against their success. Whether or not you buy Apple products, millions of consumers do. Apple has provided products that people are willing to pay for...and they're providing a complete user experience that encourages multiple purchases.

    Please, tell me how that's a bad thing from a business perspective?

  • Report this Comment On June 01, 2010, at 1:02 PM, Silaschino wrote:

    Typical. Two who "get it", one who doesn't. Apple wasn't the first MP3 player. They just did it "right". Late to the smartphone marketplace, but they were the first to do it "right". Tablets galore, but nobody could figure out how to do it "right" until Apple. Wait until the smartphone market passes 50% of the cell phone market (couple years, maybe) and Apple has well over 50% of the smartphone market (which they will, without doubt). As in the music player market, Apple will dominate (around 80%) of the tablet market in a couple years. Then Apple is a $500 stock.

  • Report this Comment On June 01, 2010, at 1:34 PM, trurl9 wrote:

    Is the crisis of Steve Jobs as Messiah resolved? Apple's succession plan?

    When I picked up Apple at $83 in 2009, Jobs was on leave and Mr Market had jumped out of the plane without a parachute. But I perceive chinks in Apple's marketing today.

    Falling out of love with IPad:

    http://www.theregister.co.uk/2010/05/28/ipad_love_affair_goe...

    Developers are annoyed with Apple's closed nature. Steve Jobs is a control freak some lament.

    Apple will continue to run but Tech is too prone to whims and new developments. The time to pick up Apple was at $80 not $250.

    Does Apple have enough creators and ideas to perpetuate profits for a decade? Show me the next Apple with a share price I can realistically afford.

  • Report this Comment On June 01, 2010, at 2:02 PM, DaveMartinez wrote:

    I own both AAPL and DELL stock. I developed in Microsoft technologies from 1987 until 1999, then on Unix. And even though I write software for a living you have to put the geekery aside for a bit and think about the core business - AAPL is in the business of controlling the whole stack to produce high quality digital products with a large, 20-ish% profit margin. DELL and the other PC makers are the other end of the spectrum - they produce only one part of a commoditized ecosystem, which means they can just produce the hardware and blame everyone else for everything that goes wrong that is not their "piece". For this they get a 4% profit margin.

    The Windows PC market is likely only going to keep growing only slowly. People who enjoy tinkering with their PCs will use Ubuntu or other Unixen. People who would rather pay a bit more to save themselves hassles will buy Macs and Apple products and pay for the premium (the extra cost is not that much if you value your time). Developers do better on a Mac because it's Unix underneath and can run any OS using Virtualization. Everyone else will stay on their current machine until it dies. As people discover the value proposition of Apple, it leaves only hardcore gamers and large companies, only one of whom will pay premium and both of whom will not buy often during a recession.

    As more iPods and iPads make it into homes people are starting to find the value of pairing them with an actual Mac. Add this to the fact that properly upgraded Macs can get pretty long in the tooth before things start no longer working (my main Mac at home is a 2006 model I upgraded with a TB drive and still a fine machine, after I get a new one I'll give this one to my young kids), and the dead-simple, plug-the-machines-together-and-click-a-big-button migration and you have an industry-changing phenomenon driven by Mobile devices and changing lifestyles because the cost proposition starts making a lot more sense.

    There are chinks in the strategy for sure, but as a business, healthy profit margin, large growth opportunity, reasonable PE and a worldwide public literally lining up for hours to buy $500-1000 products with 20% margin during a severe recession should tell you what you need to know. I'd say it's worth at least $300. $320 if the next iPhone hits it out of the park.

    After all, GOOG is $489.90 on 28pct profit margin, and AAPL is starting an ad network for the large app footprint in their devices, which if executed properly should push the profit margin further upwards.

  • Report this Comment On June 01, 2010, at 4:16 PM, sylcar wrote:

    Show me a company with this kind of healthy profit margin, large growth opportunity, reasonable PE and a worldwide growing fan base. I will buy shares .

  • Report this Comment On June 01, 2010, at 4:53 PM, plange01 wrote:

    its not to late to buy apple short!!thats a great buy!

  • Report this Comment On June 01, 2010, at 5:41 PM, wasmick wrote:

    Relax, ChicoSilas - I've owned AAPL since 2005 and I pretty only use Macs at home. That said, I couldn't resist the temptation to beat the inevitable rabid fanboy to post that Apple craps gold. Both you and I know that's not true...it's a great company and a great stock but ya gotta admit the foaming "apple can do no wrong" nonsense gets a bit tiresome. I figured it was only a matter of time until some silly cheerleader came along to with an unsupported stock price number like $500. Thanks for not disappointing.

  • Report this Comment On June 01, 2010, at 6:36 PM, lutece7 wrote:

    plange01, I bet you don't back that up by shorting Apple.

  • Report this Comment On June 01, 2010, at 7:25 PM, lutece7 wrote:

    I am a longtime fan of Apple, user of Apple and stock holder of Apple. I sure don't see a lot of "Apple can do no wrong" statements. It has been a long uphill battle getting people to take Apple's products and it's stock seriously. a LONG uphill battle. I have had to deal with so many naysayers and doubters over the past 20 years. They said the Mac's GUI they introduced in 1984 was amateurish, and gimmicky, not businesslike. They were wrong, and Apple "fanboys" are right over the short haul and the long haul. And ever one who uses Windows should give Apple a big thanks for doing all the research and development for Microsoft over the years. But even I can admit that Apple can do wrong. And all my fellow mac "fanboys" can too. So think that wasmick is exaggerating.

    I have spent a lot of money on Motley Fool services. To date, I wonder why. They get it right sometimes, but just as often they get it wrong. Have they ever, I mean EVER recommended buying AAPL? I sure don't think so. I believe FOOL has always steered away from Apple. It seems to me to be very very stubborn, and yes, FOOLISH! LOL

    There are a lot of people who are very bitter for not buying Apple either its stocks or its products, sooner. Get over it. Buy AAPL. Buy Apple. It is a corporate culture that gets it right. And they will keep getting it right.

  • Report this Comment On June 01, 2010, at 8:01 PM, hportofino19 wrote:

    Lucete7...Fool has recommended apple in the past.... As the world keeps adapting new technologies, I believe Apple will be in the forefront of that change. Imagine all the future Iphones and Ipads that will be sold in China and India in the next ten years as these countries catch up in technology and infrastructure. Apple...long......

  • Report this Comment On June 01, 2010, at 8:20 PM, penchy1 wrote:

    lutece7

    What do you mean by The Fool never recommends AAPL? Did you see the disclosure at the article's end? "Apple is a Motley Fool Stock Advisor recommendation." I bought AAPL because of SA.

    Mark

  • Report this Comment On June 01, 2010, at 10:16 PM, lutece7 wrote:

    ohh, sorry, I am a Million Dollar Portfolio subscriber. I take that back. Glad to hear it. I just read a lot of negative stuff about Apple by the Fool.com contributing columnists. Thanks Mark and hportofino.

  • Report this Comment On June 01, 2010, at 10:19 PM, markitall wrote:

    I only own one of the Apple products, that is an Airport Extreme router, but I own AAPL stocks and of course with downside protection. Apple is, in my opinion, a niche/cult product to satisfy the hungry tech society in the consumer discretionary sector. In the corporate world, the Blackberry and PC are the bread and butter to their business operations, at least for the next decade. Corporate world is tough to crack for Apple, yet it is the market that has made Dell and now HP and Blackberry the top players in it. Apple only turned around when Jobs returned to head it and that should be a telling story. Jobs goes and Apple goes.

  • Report this Comment On June 01, 2010, at 11:01 PM, pstonebridge wrote:

    I worked in Silicon Valley for 20 years and was always amazed that the lousy design and bug-infested software for PCs always seemed to win out over the leading edge technology and innovative software for the Mac. People just couldn't see the benefit of paying a little more for first class engineering in those days.

    Those days are over. Microsoft has run out of excuses for lousy performance of their software, because the Macs now use the same processor. People are finally seeing the light and paying a little more for the best computing platform out there - and the best toys.

    Steve Jobs is a visionary, Bill Gates is a lucky software geek turned marketeer who took his crappy DOS program when IBM rejected it and used it to turn himself into a billionaire. Maybe he can get a job at Goldman Sachs now.

    Steam on, Apple. Rock on, Google. You guys are the future!

  • Report this Comment On June 01, 2010, at 11:57 PM, beetlebug62 wrote:

    The question is whether it's the investors who are not sensible or is it Anders? I mean when he mentions fundamentals, he shows Apple is undervalued, and yet his conclusion, based on his personal bias is 180 degrees different. Why does Anders persist on his snarky comments and insults? Can't he make a clear rational argument without all the insults? I think people would take less issue with him if he just stopped with his juvenile behavior and take a look in the mirror. It isn't the Apple fans who are acting silly, it's Anders nonsensical rationalisations for his opinions that are silly and insulting to readers and the least Foolish of all the TMFs. What has happened to the standards? I've been visiting TMF since 1991 when AOL only had a few hundred thousand users, so I've read thousands of TMF postings.

  • Report this Comment On June 02, 2010, at 4:33 AM, snafflekid wrote:

    Now that computing is everywhere in our modern lives, even minor software glitches and poorly designed interfaces add up to real time lost and real frustration. Consider that Google is shaving milliseconds off search results and tweaking the interface down to the pixel. Poor design does not stand a chance anymore.

    I believe we have reached a tipping point of public annoyance with malfunctioning and non-intuitive technology. Apple sits in a sweet spot of tight integration and marketing savvy.

    The iPod was the gateway drug and the world has become hooked on Apple.

  • Report this Comment On June 02, 2010, at 10:17 AM, lutece7 wrote:

    Citrix survey: 80% of its business users plan to buy Apple iPad and use it as a business tool.

    http://www.appleinsider.com/articles/10/06/01/citrix_survey_...

  • Report this Comment On June 06, 2010, at 12:55 AM, voyagergirl wrote:

    I bought AAPL in 1997 at $18 a share mostly out of a faint hope that its stock price may one day reflect the greatness of its products. I had only about $1,000 to invest. That small investment has now funded most of my diversified stock portfolio as I sold off AAPL at intervals to buy "safer" dividend-paying stocks. Oh, I wish I had kept all those AAPL shares! But of course, hindsight is 20/20 and I am happy that thanks to AAPL, I have more money than I would have otherwise.

  • Report this Comment On June 08, 2010, at 1:47 PM, InvestmentRep wrote:

    Well Apple did just come out with the iphone 4. Although android phone sales are increasing rapidly in comparison to iphone sales it could be a good idea to buy AAPL shares to capitalize on the release of their new phone. BP could also be a safe bet in a month or two but who knows. In the meantime I've been investing in a couple ideas I found on the Investment Reporter blog. here's the link if you're curious http://theinvestmentreporter.wordpress.com/

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1196738, ~/Articles/ArticleHandler.aspx, 10/22/2014 12:55:51 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement