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Why Now Is the Time to Buy Apple Stock

Once the most valuable company in the world, Apple (NASDAQ: AAPL  ) stock dipped below $400 this week to bottom out at its lowest levels since 2011. Yet as shares of Apple continue to free-fall, the stock's valuation becomes increasingly more attractive. The stock is currently trading at just nine times earnings, well below the market average of 15 times earnings.

From a valuation standpoint, this means Apple stock is trading at its cheapest level in at least 10 years, according to The Wall Street Journal.

Why you want to own it
The stock looks even better when you consider Apple's balance sheet, which boasts zero debt and more than $137 billion in cash and investments. And we can't forget the stock's 2.6% dividend yield. Better still, the company's massive cash reserves mean there's plenty of room for dividend increases or stock buybacks in Apple's future.

Sure, Apple may be transitioning from a growth stock to a value stock. However, there haven't been any adverse changes in the company's underlying fundamentals that would justify the sharp declines in its stock price.

For example, the most recent sell-off in Apple stock came after one of its chip suppliers, Cirrus Logic (NASDAQ: CRUS  ) , issued a weak earnings forecast for its fourth quarter. Analysts immediately speculated that the chip maker's forthcoming earnings weakness might be due to soft demand for Apple's iPhone 5. However, until Apple reports its quarterly results next week, this remains highly speculative.

Greedy when others are fearful
Of course, the gloom and doom surrounding Apple isn't without merit. Some analysts worry that Apple has stopped innovating, which could be problematic for the company as its products get commoditized and profit margins deflate. Increased competition from Samsung in the mobile arena is also worrisome.

While these concerns are valid, I think the panic in Apple stock is overblown. Apple still makes some of the best products in its product categories. In fact, the iPad now commands a whopping 82% of the tablet market, according to Forbes.

Looking ahead, Apple should continue to benefit from its position in the fast-growing mobile industry. In fact, "of the 1.8 billion mobile phones to be sold in 2013, 1 billion units will be smartphones, compared with just 675 million units in 2012," according to Gartner. Therefore, Apple's profits should grow alongside the broader smartphone market, despite increased competition from industry rivals.

Nevertheless, Apple's stock continues to be punished as investors sell into the panic. To be sure, Apple stock has lost more than 25% of its value year-to-date to where it trades at around $390 per share. At the stock's current valuation, I think this creates a buying opportunity for long-term investors with a stomach for volatility. Ultimately, I believe most of the risk is priced into Apple stock at this point.

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, today the question on most people's minds is 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 what opportunities are left for the company (and your portfolio) going forward. To get instant access to his latest insights on Apple, simply click here now.

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 April 19, 2013, at 6:52 PM, DanManners wrote:

    There are many articles that are headlined "Will Apple Ever Be at $700 Again" I keep asking will it ever be at $400 again. As Ennis Tanner said, Apple aint ever going to see 600 or 700 again. We will be well off if Apple which is down over $ 2.00 today including the after hours, hits 400. 440 would be a major rally.

    But $ 700 ha ha ha. Never in your lifetime. And I hope you live to 100. Why? One reason. Tim Cook. Sculley would be better than this guy. What an arrogant CEO. Why the hell did Al Gore get $ 30 million as a Board member? They dilute the hell out of the stock.

    Tim Cook has to go and he has to go now. Apple is going to 313 according to Auerbach Grayson. It is getting close everyday. Down 6 of the last 7 days and surely to be down most of next week and big. We could end up down 50 points next week with a big earnings miss and no dividend increase.

    But remember Tim Cook feels your pain. When you want to get your kids into college ask then if that will pay the tuition. Cook leave town now.

  • Report this Comment On April 19, 2013, at 7:14 PM, tychicum wrote:

    DanManners you sound like you bought in too late and are a little bitter. AAPL is likely to announce a split next week. And that it is growing in the traditional PC enterprise space. That the company will double in size once again is almost a given ... It is just a matter of when.

    I bet they don't even release iPhone unit sales any more. To break out the numbers unnecessarily only invites criticism.

    Disclosure: I bought when AAPL was $7 ... Two splits ago. So for me a bit of up and down are just the way to make AAPL more interesting.

  • Report this Comment On April 19, 2013, at 7:19 PM, DanManners wrote:

    Thanks your comment just made me feel worse..

  • Report this Comment On April 20, 2013, at 2:46 AM, lakawak wrote:

    Serously, Tamara...stop embarrassing yourself. Does it not occur to you that you lose credibility every time you and your Motley Fool colleauges have said this over the last 7 months, onlyto have been proven wrong?

    And NO ONE with a brain would buy Apple stock before the earnings report next week becuase every single person with any information on their report knows that it is going to be a BLOODBATH. Far worse than the January report, and that dropped the stock 15% in two days. So even if you are one of those delusional idiots that thinks that Apple is going to rebound and suddenly people are going to be idiots and pay hundreds of dollars more for an Apple product when an Android doesthe ame, if not more, than it for less, you would be an idiot to buy before the stock drop of next week.

    I dare say the sell off of the last 3 days were Apple execs dumping their shares ahead of hte earnings report. Apple has a history of insider trading, after all.

  • Report this Comment On April 20, 2013, at 2:50 AM, lakawak wrote:

    tychichum...when Apple doesn't annmounce a split (since no one thnks they will and you are NOT smarter than that, will you admit how stupid you are? And how you obivously lied about buying at $7?

    And seriously...even Tim Cook and everyone at Apple would laugh at you and call you an ignorant child for suggesting that it is just a matter of time before they "double in size" again. Based on WHAT? Your desperate desire to swallow the dried of demen of the late Steve Jobs? Tell me, child fanby...what will turn things around? This should be fun. I love hearing froim children who think they are expers on everything and back that up with lies about being some kind of financial genius who got in on the ground floor. Oblivious to the fact that everyone knows they are lying.

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