Apple's Nearly Back at $500 -- Time to Buy?

With Apple nearly back to $500, is there an opportunity to make some serious money?

Apr 15, 2014 at 2:00PM

For many years, Apple (NASDAQ:AAPL) represented a surefire way to beat the market. With iPod, iPhone, and iPad sales exploding, investors couldn't get enough of these shares. However, when the profit engine stopped growing full steam and, indeed, net income was down in 2013 against 2012, investors became less than enthusiastic about the stock. Today's $515 stock price represents a 27% discount to the stock's all-time high, so is it time to buy?

What type of investor are you: dividend or growth?
If you're a growth investor, then Apple probably isn't the first choice on your list -- there are smaller, faster-growing names out there that fit that bill. Indeed, a double from today's $460 billion market capitalization would represent an interesting feat indeed. Apple would need to defend its current revenue/profit stream and at the same time open up meaningfully new areas. This is something that staunch Apple bulls have been waiting for since the introduction of the iPad.

Press Photo

Apple's iPhone 5c didn't sell as well as the company had hoped. Source: Apple.

However, if you're a dividend investor or, say, a dividend-growth investor, then the question becomes more interesting. From a pure dividend perspective, you get about a 2.37% yield on any purchase made today. This is OK, but this isn't an earth-shattering dividend that will get investors rushing out to buy the stock. What some investors are hopeful for is a long and prosperous dividend-growth story.

Dividend growth, eh?
The idea behind dividend growth stocks is simple: As the company steadily grows profits, it will continue to give more of those profits back to the shareholders. In some cases, companies with flat profits can increase the percentage of its profits that are paid out to shareholders in a bid to pay them to wait for a return to growth. The former is usually healthy and the latter is sometimes seen as desperate.

Today, Apple's dividend represents a payout of $12.2 per share represents about 30% of its profits. While there is possibly room to increase that number, do keep in mind that much of Apple's profitability comes from overseas and, for tax reasons, Apple chooses not to repatriate that money, making it unusable for dividend/buyback purposes. There may not be as much room to increase the dividend as some investors may think.

It all circles back to net income growth
While Apple could borrow against its overseas cash hoard to buy back shares and reduce the share count, thereby allowing a larger dividend across a smaller number of shares, it all really does circle back to net income growth. But here's the thing: If Apple can return to net income growth, then the stock price really should take care of itself. If it can't return to net income growth, no amount of share buybacks or dividend increases will save the stock.

So, the question really comes down to whether you believe that Apple's net income has bottomed and could return to growth. It seems that there's not a lot of visibility right now into the full year and the first half of the year is looking pretty meh. The iPhone 6 cycle, the new iPads, and potentially the iWatch could be enough to drive dramatically higher revenues (and a successful iWatch diversifies Apple's revenue stream, which could help the stock's multiple), although it's still too early to tell.

Foolish bottom line
At $515 per share, Apple is dirt cheap at under 13 times trailing-12-month earnings. Indeed, one more major product category on top of the growing smartphone/tablet markets could be more than enough to drive meaningful net income growth and a higher multiple (as diversified revenue streams are "safer"). If you think Apple can hold the line with modest iPad/iPhone growth and generate meaningful revenue from other products/services, then the stock looks like a solid buy here. 

While Apple may be a great value, this stock could be a growth monster
Let's face it: Every investor wants to get in on revolutionary ideas before they hit it big. Like buying PC maker Dell in the late 1980s, before the consumer computing boom. Or purchasing stock in e-commerce pioneer in the late 1990s, when it was nothing more than an upstart online bookstore. The problem is, most investors don't understand the key to investing in hyper-growth markets. The real trick is to find a small-cap "pure play" and then watch as it grows in EXPLOSIVE lockstep with its industry. Our expert team of equity analysts has identified one stock that's poised to produce rocket-ship returns with the next $14.4 TRILLION industry. Click here to get the full story in this eye-opening report.

Ashraf Eassa has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Apple. 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.

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