Apple, Inc. Stock in the Post-Steve Jobs Era Is Looking Good

While Street sentiment toward Apple (NASDAQ: AAPL  ) stock has been up and down over the past several years, the recent surge in the company's stock price is a reminder that patience pays off and fundamentals will ultimately drive a company's stock price.

Did Apple ever really lose its flavor?
Apple has staying power. Not only does the company dominate the high-end market for electronics hardware, but the retention of Apple's customers across its product lines is also second to none. Apple has built an ecosystem of software, hardware, and services that keeps customers coming back for more. All of this has led to a history of successful product launches and a robust bottom line.

Interestingly, the same thing could have been said about Apple in August 2011, when Steve Jobs resigned. Yet many headlines at the time suggested that the company was doomed without its iconic founder. The company's conservative valuation, trading at about 15 times earnings in 2011, reflected this concern.

In 2011, Apple was a stellar low-risk investment: a fast-growing, profitable business with staying power trading at a conservative valuation. Very rarely are opportunities so clear.

Of course, anyone who follows Apple stock closely knows how the story played out for the long-term investors who held the stock since then. Shares are up 58%. And even this figure understates the performance of the stock, considering Apple began paying investors a dividend in the second half of 2012. Well-received new products under Apple's new CEO, Tim Cook, have helped the company grow trailing-12-month free cash flow more 50% since Apple's founder stepped down.

Where's Apple stock headed next?
In the short term, it's hard to tell what could be next for the stock. There's talk of an iWatch, an app store for the company's set-top box, and even a full-fledged payment service. Maybe these will provide a short-term catalyst for the stock. But Foolish investors will never bet on the direction of a stock in short run. Not only can company-specific news alter Mr. Market's volatile emotions toward a particular stock, but economic news can also suppress valuations of the entire market all in one swoop (and these are only a few of the buttons that get Mr. Market excited).

Over the long haul? Chances are the stock will continue to perform well. Zooming out 10,000 feet, Apple stock is still an excellent business trading at a conservative valuation. Not only does Apple's staying power look stronger than ever, but its business is still growing. In Q2, Apple posted record revenue for the March quarter and sales of its largest and most profitable business were up 14% from the year-ago quarter. And like icing on the cake, Apple also boosted its program to return cash to shareholders through repurchases and dividends by $30 billion and said it plans to increase its dividend on an annual basis.

All this and Apple stock trades at just 14 times earnings compared to the S&P 500's price-to-earnings ratio of 17.5. A recipe for a low-risk long-term investment, right? For Foolish investors with longer time horizons, I think so.

But this simplistic 10,000-foot view of Apple won't be the major driver of the stock in the short term. The Street will grab onto headline-driven short-term nuances the same way Steve Jobs' absence served as one of the factors that suppressed the stock in 2011. But for investors in for the long haul, betting on Apple stock will likely continue to prove to be lucrative.

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Comments from our Foolish Readers

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  • Report this Comment On April 29, 2014, at 7:45 PM, Chiam wrote:

    Apple was lucky to beat on the last earnings call but unfortunately there will be a big sell off that will bring us back to the 565 area at first (per Tim Seymour Fast Money).

    As usual Apple will sell off to pretty much where the rally started. I remember a few years ago, Apple beat big and then the stock sold off 100 points. The reason for this is to give investors a chance to get back in. But often the pounding Apple takes from the media and analysts can cause it to drop much further than anticipated. When Apple dropped to 385 it could have bought back 1/3 of its shares at that point. Yet it still was dropping and people were predicting $ 200 a share.

    As we have already started the drop, I see a few weeks of selling bringing Apple back to the 530 level or lower. I can't see it dropping below 500 as their will be more buy backs and future catalysts. WWDC usually drops the stock as people want more than a showcase of the new opsys. But the next catalyst will be in September when the new phone is launched. Rumors say the phones could be delayed until next year. This might just be the phone that is rumored to be over 5 inches.

    Cook warned us that good things take time. This could be his way of letting us know that a new phone won't come until 2015. If it is a better phone then it could be worth the wait. If that is the case I see the stock taking a hit and we could fall the the 470 or 450 level that Tim Seymour also predicted.

    Tim Cook does not move fast and it seems to most that they have been waiting a lifetime for a new category. I see that happening in 2015 or the latest in 2016. 2017 would just be too long to wait and Mr. Market may view this time as excessive.

  • Report this Comment On April 29, 2014, at 8:09 PM, RussellL wrote:

    On March 19, 2012 AAPL closed at $601. Later that day Apple first announced they were going to initiate dividends and buybacks.

    Like clockwork, naive fanbois convinced each other it was a great idea because fewer shares on the market will make the stock price go up.

    It didn't happen.

    Just 2 years later, April 23, 2014, AAPL closed at $524. Down 14%.

    During the same time, AMZN went from $185 to $324. Up 75%.

    Now Apple is multiplying available shares.

    Why the complete turn around? Apple couldn't fool enough people?

    As I have said before, just because a company makes a lot of profit, it doesn't mean their stock will go up.

  • Report this Comment On April 30, 2014, at 12:12 AM, TMFDanielSparks wrote:

    @RussellL,

    Thanks for your comment. When I look at Apple's performance (or any company, for that matter), I think it's important to zoom out further than two years. Stocks can do anything in that time frame. It's time periods of five years or more that really make or break long-term buy-and-hold investors, not two years.

    And regarding your comment regarding Apple stock's performance since it announced dividends and repurchases ... The market is forward looking. It was clear before March 2012 that Apple would have the cash for share repurchases and dividends.

  • Report this Comment On April 30, 2014, at 7:33 AM, jdmeck wrote:

    NEVER A DOUBT IN MY MIND, BUT I SEE THE USUAL DOWNERS ARE HERE.

  • Report this Comment On April 30, 2014, at 12:02 PM, harperska wrote:

    I am glad somebody has finally spoken up about the long term performance of AAPL. I am no financial genius, but when the stock chart is zoomed out it looks very much to my untrained eye that the entirety of 2012 was nothing more than an anomaly. Zoom the chart out to the 10 year view, cover up 2012 with your finger, and imagine a straight line connecting 2011 to 2013. It looks like steady reliable and relentless growth from early 2009 to the present.

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