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7 Stocks to Consider Before Buying Apple

Anand Chokkavelu, CFA
December 4, 2010

Too many investors get excited and jump into a stock without comparing it with other possibilities. This is true for great stocks, and it's true for terrible stocks. What I'm about to do is play devil's advocate.

In this series, I try to help investors see the possibilities by highlighting a few companies as reference points as they decide whether to jump into the stock.

Today's stock is Apple (Nasdaq: AAPL  ) , arguably the hottest large-cap stock in the market. Its two-year price chart is pretty much straight up. It sits above $300 a share today, and an average of 18.9 million Apple shares trade daily. That’s roughly $6 billion of stock trading hands daily!

Before you pull the trigger, let's look at a few companies in Apple's space. I've divided them into two groups: Apple's fellow sharks (its large, value-priced tech behemoths) and Apple's remoras (smaller companies that gain from Apple’s success).  

Apple's fellow sharks
Every successful growth stock eventually loses steam and has to deal with becoming a larger, slower-growing company. Outside the tech space, we're seeing that with Starbucks.

At some point, as expectations and price multiples decrease, growth stocks may even turn up on value investors' radars.

Four such companies are Hewlett-Packard (NYSE: HPQ  ) , Intel (Nasdaq: INTC  ) , Cisco (Nasdaq: CSCO  ) , and Microsoft.

These mature tech companies are nowhere near the growth monsters they used to be. And the market is pricing them as such. If you believe analyst estimates, they trade for forward earnings multiples of 7.5, 11.1, 10.4, and 10.1. And that doesn't account for any cash on their balance sheets. Except for HP, each has a net cash balance -- i.e., more cash than debt.

I've been especially intrigued by Cisco recently. In