Monday, January 25, 2010

This Is Why It's Our Largest Holding--And We Don't Own Enough!

Apple (AAPL) came out with earnings after the market close today, and the numbers were really quite astonishing.  How astonishing?  Let's just say they did well.

The troika of products--iPod, iPhone, and Mac continue to kick butt.  Especially impressive were the Mac results--up 33% in the past year.  I guess all the talk over the last year about stressed consumers not being willing to pay a premium price for this product was just so much hooey.  I confess even I drank a sip of the 'it's too expensive' kool aid. WRONG!

First, I want to warn you that much of what you will be reading about Apple is uninformed headline crapola.  There was an accounting change that is skewing how the numbers are reported, making them seem insanely remarkable, instead of just plain wonderful.

In any case, I know you don't want all the technical details, so lets just cut to the milk of the coconut: Apple is one of the market's great growth stocks, yet it is currently priced as if it were a sleepy value stock.  Here's what I mean:

The company has $40+ in cash and easily marketable securities on the books.  That cash hoard is growing at an accelerating rate.  If you 'back the cash out' and look at what earnings are on the remainder of the company, you find that Apple is growing at a 20% rate and has a PE of 13!  That's a lower PE than the overall market. And this is Apple for cripes sake!

So what we have here is one of the best run, most innovative companies in the world, selling for a below market valuation.  And that's BEFORE we even contemplate the possible game changing nature of whatever it is (the iTablet?) they will reveal to the world on Wednesday. Once their troika of game-changing products turns into a quartet of products, it's scary to contemplate what this company will earn.

Back up the truck, honey. My prediction is that Apple shares will double over the next three years.

No comments:

Post a Comment