Ready to press the “Easy Button?“
I follow Apple diligently to monitor daily positions in the Nasdaq 100 futures- but we’re not here to talk about trading.
We’re here to talk about long-term investing and right now all signs point to “Up.”
AAPL P/E Ratio Expansion Will Close The Gap With The Broader Market.
Why? For starters, while the broader market is trading at historically high forward multiples of earnings, Apple has not overextended itself in the slightest.
(See Image #1)
As I’m sure you’re already familiar, when the market is trading at an over 16x earnings it is generally considered “extended” and under 10x earnings it is “undervalued.” Do projections in AAPL point to a lackluster future?
I’m highly doubtful. In fact, I foresee AAPL “closing the gap” with the broader market’s extended multiples of earnings for several reasons:
1) Despite recently getting slammed on the newswire for lackluster expansion in the phone market this reads as nothing more than the “micromanagement” of a highly reported stock. At the end of the day you can’t discount the long term facts such as stellar growth in the phone market.
2) A great deal of that news has been a keen focus on “Apple Vs. Samsung.” Worth noting? Yes. Worth micromanaging? I think you know the answer to that…Brand retention for the iPhone is an industry leading 70%+.
3) Stellar brand retention and overall market dominance aside, there’s always chatter about “unusually high dividend earners” going on and I get the sense this talking point has left AAPL by the wayside- which brings us to our next point:
AAPL As A Long-Term “Store Of Value” & Dividend Earner
Yes, compared to a 4-5% annually adjusted dividend AAPL is not the hot topic in the dividend community- coming in at around 2.3%. But at what cost? Many investors can be lured in by talk of an “unusually high dividend yielder” and yet this means absolutely nothing if the stock issue is a poor “store of value.” In plain English: that dividend isn’t going to do you any good if your stock plummets.
So how is AAPL as a store of value during the recent sell off in the Nasdaq?
(See Image #2)
When you compare the two it becomes readily apparent…
(See Image #3)
AAPL is getting its groove back after a very healthy sell off in 2013 and is holding its value well against a Nasdaq infused decline we’ve seen over the past couple trading sessions.
So Why Consider Buying Now?
As of today both the Nasdaq futures and AAPL are trading back into their previously established ranges of value. As you can see above, the market found value in AAPL within this range twice in November 2013 as well as February of this year.
(See Image #4)
Now we’re back in an area that has demonstrated repeated value in both the Nasdaq as well as AAPL itself. To further the illustration: how does this measure up to the broader S&P 500 futures?
(See Image #5)
As you can see over the same time period the broader S&P has shown a steady incline with the recent sell off showing us coming back to yet another previous area of- yep, you guessed it– repeated value.
Point being: AAPL has been berated in the news, has held up well against the recent Nasdaq driven decline in the futures markets and is still proving itself as a store of value despite its performance in 2013. One would think that after a year like that we’d be seeing quite the opposite.
Summary: AAPL has been over-reported and micromanaged in the news. This comes with the territory of being an excellent company that is coming off of an enormous run up (think Microsoft at this time 10-15 years ago). 2013 was what it was. Now that AAPL has proven itself against an early 2014 pullback I look for the stock to close the multiples of earnings gap and get back in line with the rest of the tech sector.
Submitted April, 8 2014.
DISCLOSURE: I have no intention to hold nor will be holding any aforementioned securities within the next 72 hours. These statements are my own opinions and do not necessarily reflect the opinions of Yahoo or it’s partners and affiliates. Trading and investing involves risks and may not be suitable for all investors.