(Marketspace) I’m always on the hunt for a bargain, and not just of the Black Friday variety. Sometimes, those bargains can be in the last place you would expect. In this case, it’s in a $360+ stock of a company currently valued at $337B. But hey, a bargain is a bargain and right now, Apple Inc. is on sale!
When scanning through stocks, the first thing I look for is a trend, then the more advanced technicals (such as momentum indicators, etc.) and lastly, valuations. I must admit, I often overlook valuations, as my investing time frame is normally very short and, while the market can sustain irrational multiples for extended periods of time, it should not be a deterrent to making money off of any given move.
I haven’t bought any AAPL stock since it was at around $240, so I thought I might give it another look at the company, since I would end up spending that money in the Apple Store anyway…
First things first. Is the chart in an uptrend?
As you can see in the chart below, we are. There’s even a clean trendline, which is providing support at current prices. An uptrend is defined as a stock making higher highs and higher lows.
AAPL Inc. (NASDAQ: AAPL) How about the momentum indicators?
While the MACD indicator is very negative, it looks to be near it’s lower extreme, meaning a reversal to the upside of the indicator is likely going to happen soon.
What are the AAPL Valuations and Multiples?
Here’s where it gets interesting. AAPL is trading at a mere 13.1 P/E ratio, which is well below the S&P 500 P/E ratio of 19.38. Just 52 weeks ago, AAPL’s P/E ratio was 20.8 and the 5-year average P/E ratio is 22.6.
Price Earnings Ratios
Current P/E Ratio 13.1 P/E Ratio 1 Month Ago 14.4 P/E Ratio 26 Weeks Ago 16.1 P/E Ratio 52 Weeks Ago 20.8 5-Year High P/E Ratio 39.4 5-Year Avg. High P/E Ratio 26.6 5-Year Low P/E Ratio 8.6 5-Year Avg. Low P/E Ratio 13.6 5-Year Avg. P/E Ratio 22.6 Current P/E as % of 5-Year Avg. P/E 58% P/E as % of 2 Digit MG Group P/E 86% P/E as % of 3 Digit MG Group P/E 83% 12 Month Normalized P/E Ratio 13.1 Source: Forbes
What’s the Deal?
Why are traders discounting AAPL? Do investors believe the innovation pipeline is dry because Steve Jobs is no longer in charge? Is it because investors are disappointed with the iPhone 4S? Do investors believe that the company can not grow their earnings in a global recession?
While I can’t say for sure, I believe that, generally speaking, AAPL has been somewhat off the radar for many, as the turmoil in Europe dominates headlines and dampens investor sentiment. Then of course, there’s…
The Steve Jobs Effect
The passing of Steve Jobs was tragic for many and left many investors wondering about the company’s future. I’ve read countless articles about Apple Inc. having peaked and the impending collapse of the company as we know it. I personally disagree, because such a statement would discount not only the brilliant minds that Apple Inc. still has today, Steve Jobs’ leadership itself. Apple Inc. was never a one-man show and there are still plenty of talented people in the company.
The masses may have idolized Steve Jobs as being one of the greatest minds of our time. Although there is a lot of recognition for his ideas and how they changed our world as we know it, his foresight is likely much more far reaching that we may have anticipated. After all, this is the guy who came up with the iPad before he came up with the iPhone.
While I don’t care much to speculate about what their next inventions will be, I do feel confident in saying that there is likely a number of projects already in the pipeline, which could be as far out as the next 10 years.
With regard to the new CEO Tim Cook, my belief is that if Steve Jobs thought he was fit for the job, then he must be the right choice.
Positive Catalyst
As I mentioned earlier, I do not care to speculate about upcoming inventions by AAPL, but rather where the stock is headed. There is one very obvious major release that is coming up in less than a year, which is the iPhone 5, which was strangely anticipated for this year by many pundits, although it would not have followed Apple’s normal way of doing things. The launch of the iPhone 5 being approximately a year away leads me to believe that I can capture the pre-announcement run-up, the pre-launch run-up and the crazy volatility of the first week-end of sales (probably in July or August). If all goes well, I’ll even be able to hang on for the FY2012 Q4 earnings release (which they always low-ball) and the ensuing price spike. It seems logical for me that Tim Cook would want to close out his first fiscal year as CEO with a bang and the iPhone 5 is his key to achieving this.
Conclusion
I see this as one of the few great opportunities to buy AAPL before it makes another year-long run-up and, if we see the overall market go back to a “risk-on” environment, I can see AAPL easily get back to previous highs of $426. A return to former valuations, or at least consistent with the market, would bring us over $500. My time frame for such a run-up is to be over $500 by May, before the launch of the iPhone 5 and before hedge fund managers go to their summer homes in the Hamptons. Until then, I just need to sit back and wait (and watch the stock on my iPad).
Stay tuned!
Jordi Perez
Founder, Marketspace
MarketspaceTrading.com