Bargain Stocks for Black Friday: Apple

Thanksgiving might be over, but the hunt for deep discounts has just begun! See all of our Foolish picks for Bargain Stocks for Black Friday.

Trivia time. Name a stock that:

1. Has more cash than either Microsoft (NASDAQ:MSFT) or Google (NASDAQ:GOOG).
2. Has claimed a fast-growing share of a massive-growth market.
3. Is valued at multiyear lows.

I'd stretch this out a bit, but you've already seen the headline, and you know the answer: It's Apple (NASDAQ:AAPL), a current Stock Advisor pick. If you already own shares, great! You're right to own this stock. And if you don't ... what are you waiting for? A better buy-in price?

Well, yeah. At least, that's how CAPS investor djemcee put it in this pitch from last week: "Even though Apple has its loyal fans, the bottom line is that they are OVERPRICED and only command 8% of the PC market. The I-Phone is a silly gadget that appeals to a very small market segment."

The iPhone is silly? A bit player in a small market segment? Um, no:

Source: Canalys.

Look at those gains. Of all the smarty-pants handset makers, only Apple and Research In Motion (NASDAQ:RIMM) have buyers excited. Nokia (NYSE:NOK)? Not so much.

But again, these are silly toys meant for rich people. Surely real handsets are winning, as they always have? Nope. New research from NPD shows that Motorola's (NYSE:MOT) lower-tech gadgets -- the not-so-silly RAZR, for one -- lagged the iPhone in third-quarter sales here in the U.S.

Brrrrrrrrring! Numbers calling!
Even so, you can't really understand what the iPhone means to Apple until you take a closer look inside the cash flow statement.

"The Company's cash generated by operating activities significantly exceeded its net income due primarily to the large increase in deferred revenue, net of deferred costs, associated with subscription accounting for iPhone," Apple says on of its 10-K annual report.

See, every iPhone sale is booked as if it were a monthly subscription, even though most of the cash is received at purchase. The implication? If you're valuing Apple using, say, the P/E ratio, you're grossly underestimating the impact of the iPhone. To wit:

Source: Capital IQ, a division of Standard & Poor's. Numbers in millions.

Talk about a massive cash generator. But, again, you wouldn't know that from the income statement. There, Apple recognized just $806 million of roughly $4.6 billion in iPhone revenue. ($3.8 billion was deferred, Chief Financial Officer Peter Oppenheimer told analysts during Apple's Q4 earnings call.) Note, though, that most of the growth in free cash flow is driven by increasing deferred revenue, which is linked to growth in iPhone sales.

The difference is staggering:

Sources: Apple executive comments, filings.

Apple says in its Q4 data summary that iPhone revenue is derived from "handset sales, carrier agreements, and Apple-branded and third-party iPhone accessories." When you count all that -- a lot of which comes from AT&T (NYSE:T) -- each iPhone sold nets Apple a whopping $667 in cash. Not much of a price cut, is it?

But Mr. Market doesn't care. By historic cash flow standards, the iEmpire is cheap:

Source: Capital IQ, a division of Standard & Poor's.
*Numbers in millions.

Color me impressed. Unless the growth in iPhone sales falls off a cliff, which appears unlikely in the near term, this stock is still a no-brainer buy.

Do you agree? Disagree? Click here to rate Apple in CAPS. And be sure to return next week, when our editors reveal the best Black Friday bargain.