3 Reasons You Should Stop Sitting on the Sidelines and Buy Apple

It's been more than eight months since Steve Jobs passed away. Along with sadness over Jobs' passing, Apple (Nasdaq: AAPL  ) investors the world over were concerned that this would mean the end to Apple's greatness.

Yet in that time, the stock is up 54%, the company has produced stellar quarterly results, and it's instituted a new dividend.

But the ride is far from over. If you've been sitting on the sidelines because you think you've missed the action, now is the time to make your move. Here are three reasons why.

The stock is dirt cheap
There are lots of metrics I could focus on here, but I think the following graph captures it all. Usually, when a company's stock price rises, it's a combination of two factors: increases in both earnings and the multiple (P/E) investors are willing to pay for the company.

With Apple, this isn't the case. Apple's stock price has continued upward in spite of the contraction of its P/E. This, of course, means earnings have gone through the roof.

AAPL Chart

AAPL data by YCharts

As it is, Apple trades for just 14 times earnings. If you back out the company's $110 billion cash hoard, that shrinks down to just 11 times earnings.

At these rates, investors believe that Apple will be growing by only about 10% to 15% in the future. In reality, that would represent a huge slowdown, as earnings have grown 58% per year for the past five years.

I understand some investors are worried that there's a cap on how big Apple could become, but last time I checked, Nasdaq didn't have a limit on a company's size.

Rapid adoption
Taking a stroll down a city street, you could be forgiven for thinking that everyone in the world already owns an iPhone or iPad. The reality, however, is a bit different.

Smartphones reached only 50% penetration in the U.S. this year, and internationally, only 10% of global citizens have the devices.

In the United States, it's a two-horse race between Apple and Google's (Nasdaq: GOOG  ) Android operating system, but there's still a ton of market share to capture globally -- where Google is handily in the lead.

Operating System

2012 Global Market Share

Google's Android 61%
Apple's iOS 21%
Research In Motion's (Nasdaq: RIMM  ) BlackBerry OS 6%
Microsoft's (Nasdaq: MSFT  ) Windows Mobile 5%
Others 7%

Source: IDC.

Though BlackBerry might have a dubious future, competition will surely exist from Microsoft as well. But global conversion to smartphones and any incremental market-share capture will mean big business for Apple, which is already one of the most popular brands in China.

Of equal importance, the adoption rate of tablets is on pace to break historical speed records.

Source: Technology Review.

Source: Technology Review.

This means that though the iPad accounted for only 17% of Apple revenues last quarter, this number could easily balloon in the coming years.

But really, it's not about the hardware
When we think of Apple, the iProducts are obviously the first things that come to mind. But famed investor David Einhorn sees it differently, and I agree with him. In an industry that is ripe for disruption and changes rapidly, any sustainable competitive advantage is a big deal -- and Apple's operating systems provide that advantage.

Think of it this way: For the past five years, my wife owned a Hewlett-Packard (NYSE: HPQ  ) laptop. During the time she owned it, she purchased an iPod and an iPhone. When it came time to get a new laptop, there was no question that it would be a Mac. She wanted her devices to communicate and sync with one another -- and that was only possible if she had a Mac.

As hedge fund manager David Einhorn pointed out: "Once the user has a second device, [Apple] has captured the customer. At that point, a future competitor has to make a product that isn't just a little better, but a lot better to get people to switch."

This is the most underappreciated aspect of Apple's model. Something as cheap as an iPod could be the gateway drug that leads international consumers to becoming full-fledged Apple buyers.

This isn't empty pandering
I've backed up my personal sentiments about Apple in both word and deed. I've made a bullish CAPScall for Apple on my All-Star profile, and the company currently accounts for 8.6% of my personal portfolio.

If these numbers have impressed upon you the huge opportunity in the mobile computing space, I suggest you check out our latest special free report: The Next Trillion-Dollar Revolution. Inside, you'll get the name of a chipmaker whose devices will be in millions of the new devices Apple is selling. Get your copy of the report today, absolutely free!

Fool contributor Brian Stoffel owns shares of Apple and Google. You can follow him on Twitter, where he goes by @TMFStoffel.

The Motley Fool owns shares of Microsoft, Google, and Apple. Motley Fool newsletter services have recommended buying shares of Apple, Microsoft, and Google and creating bull call spread positions in Apple and Microsoft. The Motley Fool has a disclosure policy. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


Read/Post Comments (5) | Recommend This Article (10)

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 20, 2012, at 11:35 PM, commercenary wrote:

    DEVICE... gateway DEVICE.... :)

  • Report this Comment On June 21, 2012, at 12:26 AM, Curiosiddy wrote:

    lol, I know! (being the proud owner of 2 iPod shuffles, the U2 iPod & 2 iPod Touches & I want mac but can't afford one. :( Maybe my stock will enable me to buy one in a year or so...

  • Report this Comment On June 21, 2012, at 2:26 AM, xmmj wrote:

    @ curiosiddy

    Remember when you buy your alternative to a Mac that if you ever want to upgrade the OS, it will cost you $120 from MSFT but only $20 from Apple.

    In 5 - 7 year lifetime (my daughter's MBP is from 2006 and running fine) That will be probably an extra $200 you will need to pay.

    Also I resale value. I just looked up 2006 MBP on Seattle Craigslist. They go form $275 - $650! The higher end is half the price of a new one!

    So - count all things before you say it is too expensive.

    Good luck.

  • Report this Comment On June 21, 2012, at 2:50 AM, xmmj wrote:

    Here is a comparison from Craigslist Seattle:

    2011 model Toshiba ultra thin and light laptop

    (3.2 lbs) with an i5 processor, 4GB ram, 500 GB HDD, webcam,blue magnesium alloy finish on the top. 1 HDMI, 3 USB 2.0, DVD writer, SD card slot. Come and pick it up. $450 or OBO. Model # R705-P41

    Original price: (from engadget) $800

    Asking: $450 (almost 1/2)

    ------

    Macbook Air 2011 11" 4GB 128GB SSD Core i7 1.8Ghz proc - comes with office.

    Current price new gen: $1099

    Asking price: $925

    Now I think this is crazy, but lets say they get $900 for it that is 81% even $800 is 73% vs 56% for the Asus

  • Report this Comment On June 21, 2012, at 11:19 AM, dexter1225 wrote:

    @xmmj

    All that says to me is there is greater value in PCs compared to Macs. Just look at the peripherals you get on a PC at a lower price point.

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