Why I’m Taking Another Bite of Apple Stock

Investors’ negative short-term psychology gives long-term investors a great buy: Apple.

Feb 4, 2014 at 11:00AM

One of my favorite opportunities in investing is identifying whacked out psychology. After Apple (NASDAQ:AAPL) reported quarterly results last week, many financial headlines blared about a bad, bad apple. That's ridiculous, and that's why it's time to take another bite.

I manage a real-money portfolio for Fool.com, which I call the Prosocial Portfolio, focusing on companies that in various ways touch on social responsibility. In April 2013, I bought Apple shares (with some reservations).

After all, Apple isn't perfect in this area; few companies come close yet although we are getting closer as more companies retool their businesses for socially responsible factors. Still, there is something to be said for a great brand with much-loved products.

Regardless of investment philosophy, though, Apple shares look cheap.

Perspective beyond paranoia
The dark, depressed end of the market's well-known bipolar psychology doesn't reflect the true story. Here's reality check question to ask. Is tech giant Apple tarnished, hobbled, seeing tremendous numbers of defecting customers and a withering core business? No way.

Apple reported quarterly net income of $13.1 billion, or $14.50 per share -- mind-blowing numbers. Revenue increased 6% to $57.6 billion. Apple generated $22.7 billion in cash flow.

Meanwhile, it's well known that Apple has an astounding amount of cash on its balance sheet -- $40.8 billion, or a whopping $45.70 per share. That's a safe stock for any economic climate.

Apple currently trades at 11 times forward earnings, with a PEG ratio of 0.60. Although forward prognostications from analysts can be very, very wrong -- often another case when investors can figure out solid buys or sells -- given Apple's universe of powerful products, truly dire downward revisions seem unlikely.

Google (NASDAQ:GOOGL), another great company with amazing growth prospects, has been on a major run this year. Google shares are currently trading at 18 times forward earnings with a PEG ratio of 1.41. While its greatness doesn't necessarily make it tremendously overvalued, Apple is cheaper right now.

Let's throw Microsoft  (NASDAQ:MSFT) in for good measure. It's trading at 13 times forward earnings, with a PEG ratio of 1.83. However, given the fact that Apple and Microsoft are trading at similar multiples, which one would you rather buy, when assessing which company's products have addictive "wow" appeal?

Yep, Apple is a very good buy.

Risks and rewards
As is the case with any company, of course there's risk. Although the current hysteria is overdone, there is some relationship to real concerns for the long term. Innovation has been lackluster when it comes to the "and wait, there's more" wow factor for which Steve Jobs was known well. I went so far as to express that the iPhone 5c announcement simply ended up feeling "meh" last year.

Last fall, I even voiced some sentiment that Apple might be "Microsoftening." Sure, that was about future risk of too many lackluster product announcements and dwindling innovation. Unlike many of the uber Apple bears, though, I still thought Apple was a hold, and even a good buy. It was just a factor to watch, and one that certainly didn't point to immediate Apple catastrophe.

iPhones and iPads remain leading products. Apple still moved 51 million iPhones and 26 million iPads, both quarterly records and increases of 7% and 13% higher shipments, respectively.

Although many tech giants are involved in phones and tablet computers, Apple isn't exactly yesterday's news. One thing Apple has down pat is its seamless ecosystem of apps, resulting in easy customer experiences. This results in popularity and loyalty.

According to Consumer Intelligence Research Partners, between July 2012 and June 2013, 81% of iPhone users bought another iPhone, compared to just 68% of Android users. The kicker: iPhone grabbed three times more users from defecting Android users, while Android only gained 7% from iPhone loyalists.

Aiming higher
There are a few glimmers of hope that under Tim Cook, Apple may gain more "prosocial" traction in the business than was ever contemplated during Steve Jobs' regime. The truth is, Apple has so many financial resources that there's a lot it could do for certain positive areas.

Apple is one of an impressive set of 300 large American companies that also include Wal-Mart (NYSE:WMT) and Ford (NYSE:F) involved in talking to the White House about ways alter some hiring factors that have probably hurt job seekers who ended up in more protracted unemployment.

The plan that's being batted around would establish some improved hiring practices, such as putting less negative emphasis on such job hunters. After years of high unemployment, it's simply common sense that those who have been unemployed for a long time aren't "duds."

Employment treatment is one of the major criticisms aimed at Apple's social side. The Foxconn controversies have underlined the worst of outsourced manufacturing. However, it's by no means the only American tech company that takes advantage of the cheap labor to boost profits.

Appetizing Apple
I'm seeking positive returns in the Prosocial Portfolio. Years of bullishness have left us with very few bargain-priced stocks. That makes Apple even more appetizing right now.

On the watch for the wearable tech revolution
Investors have been dying for more innovation from Apple, and products like the iWatch are generating like a buzz. Guess what -- this revolution ison its way, and there are ways investors can get in now. If you thought the iPod, the iPhone, and the iPad were amazing, just wait until you see this. One hundred of Apple's top engineers are busy building one in a secret lab. And an ABI Research report predicts 485 million of them could be sold over the next decade. But you can invest in it right now... for just a fraction of the price of AAPL stock. Click here to get the full story in this eye-opening new report.

Alyce Lomax has no position in any stocks mentioned. The Motley Fool recommends Apple, Ford, and Google. The Motley Fool owns shares of Apple, Ford, Google, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information