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Apple Bulls Are Being Slaughtered: It's Time to Buy

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Warren Buffett, the Oracle of Omaha, has repeatedly said that the time to buy is when there is blood in the streets. Of course, what he meant was that the best time to buy any asset is when the previous owners have been so badly hurt that their proverbial blood is running freely and they must sell to escape any more hurt. You can then find a bargain that will serve you well as an investment. In case you missed it, Friday saw Apple (NASDAQ: AAPL  ) hit a new 52-week low, bringing the slide from the historic high to about 40%. Translation: the bulls have been slaughtered in droves, there is blood in the streets, and it is about time to pick up some shares.

While capitulation is usually marked by a last push downward when the remaining bulls are driven from the market, it feels like what is going on with Apple is the shaking loose of the last true believers. There is, of course, the possibility that there will be one more spike downward before a reversal takes place; I still see the stock touching $400 before it returns to $500. In any event, the carnage present in the stock makes a strong argument that it's primed to perform and should be included in your portfolio.

A brief note on performance
While it is natural to think about Apple's performance from here in terms of its ability to return to the $700-per-share level or not, the underlying fundamentals of the stock are more important for the long-term investor -- which Fools are. The stock's price-to-earnings multiple has fallen below 10 on a trailing-12-month basis, which compares favorably to the P/E of 25 carried by Google (NASDAQ: GOOGL  ) . Even flirting with $800, Google looks strong at current levels, making an argument that at less than 10, Apple is very cheap.

The mitigating argument to the Apple versus Google comparison is that with a dividend yield of 2.5%, Apple is beginning to look more like a value stock. Google continues to fall squarely into the growth category, justified by such characteristics as its emerging markets strategy, the pending release of Google Glass, and the company's aggressive push into new markets and new services. Apple has not been quite so aggressive, and yet has managed to amass $137 billion in cash, making it the target of a shareholder suit centered around returning more of that stockpile to investors.

If Apple has fallen into the value category, its lower P/E would be appropriate, rather than evidence of its attractiveness. Still, Apple has enough growth characteristics of its own that an attempt to reclassify it is an academic pursuit at best. The stock is cheap at current levels.

A new wave of innovation
Bulls and bears alike agree that if Apple is to remain an iconic brand, and the aspirational brand that defines personal electronics, it must continue to innovate. The dissension erupts when the question of if the company can get back onto this track comes up. In the recent shareholders' meeting, CEO Tim Cook said that the company was "looking at new categories." The fans cheer and assume this means a new release is imminent, while the critics guffaw and remark that the company had better be doing more than looking.

The top areas of product development expected out of Cupertino are an Apple TV and an iWatch. Bloomberg recently reported that Citigroup analyst Oliver Chen believes that the iWatch has greater profit potential immediately than a television: "This can be a $6 billion opportunity for Apple, with plenty of opportunity for upside if they create something totally new like they did with the iPod -- something consumers didn't even know they needed." Based on Chen's margin estimates for the overall industry, while a TV would generate roughly $1.8 billion in profits, a watch could immediately create an additional $3.6 billion in profits.

The problem with the iWatch is that while reports suggest that Apple has a design team in place working on it, the investors are ready for a new product now. Of course, the number of "leaks" that have sprung surrounding the new device suggest that it is further along than you might think. Apple has a history of letting information "accidentally" escape in order to start building hype just prior to a launch. If the company really has that far to go, there would seem to be a reasonable chance any company may get there first. 

Time has come today
Apple's underlying product line remains solid and the fundamentals are strong. The bulls are bleeding and just begging those looking for a bottom to start getting serious. At this price, the stock is a buy as long as you understand that there may be limited downside from here before the stock stabilizes and reverses.

There's no doubt that Apple is at the center of technology's largest revolution ever, and that longtime shareholders have been handsomely rewarded with over 1,000% gains. However, there is a debate raging as to whether Apple remains a buy. The Motley Fool's senior technology analyst and managing bureau chief, Eric Bleeker, is prepared to fill you in on both reasons to buy and reasons to sell Apple, and what opportunities are left for the company (and your portfolio) going forward. To get instant access to his latest thinking on Apple, simply click here now.

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  • Report this Comment On March 04, 2013, at 8:27 PM, MightyMinnow wrote:

    I'm buying down starting @ $486.50 and next buy is $400. I can see already that i could/should have done better.

    I figured with the Bush tax lock, and 30% down slide, the profit takers would be gone. I never delt with anything like this stock. i might call early tomorrow and tweek my $400 bid lower?

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