Apple (NASDAQ: AAPL) finished trading last year at $198 a share. On the first trading day of this year, I recommended in a SmartMoney.com column that shareholders sell. In the two weeks since, the stock has fallen more than 30 points, three times the percentage drop of the broad market.I realize the following statement makes me a bad person, because Apple is America's most beloved company right now: The stock still seems expensive.
I own an iPhone and I'm thinking about replacing my desktop and laptop with Macs. So I get the appeal. Moreover, I freely admit that no large company in is executing like Apple at the moment. The other day I killed a few minutes watching several of the "I'm a Mac" commercials on Apple's website. What kind of company gets people to go out of their way to view its ads? I needed my first iPhone replaced because the screen cracked. I couldn't say for sure whether it was my fault. Apple replaced it for free, which was nice. But they did so within a day, and provided all the packaging I needed to mail the old phone back, right down to little tape strips to close the box and a paperclip for popping open the phone's card slot. That was almost eerie.
But numbers matter. Two weeks ago I noted that for Apple's market value, an investor could instead buy all of Hewlett-Packard (NYSE: HPQ) and Research in Motion (NASDAQ: RIMM), the top-selling computer and smartphone maker, respectively. Together they boast four times Apple's sales and double its profits. That's nearly still the case. Apple is growing fast, of course, but its growth rate no longer looks astonishing. Forecasts for the company's next fiscal year, which runs through September 2009, call for profit growth of 25%.
That kind of growth makes Apple worth more than the broad market. And so while the average stock fetches 16 times this year's earnings forecast, I'd call Apple a square deal at perhaps 25 times fiscal 2008 earnings forecasts, or just under $130. Perhaps I'm being cheap, but I worry that the expected slowdown in consumer spending could convince people like me to get another year or two out of our Dells. And I'm uncomfortable with Wall Street's near-unanimous love for the stock. Out of 27 analysts who cover it, 23 do so with "buy" or "strong buy" recommendations. None dares suggest you sell. That's a lot of popularity to live up to, especially considering the market's current mood.
Jack Hough is associate editor at SmartMoney.com and author of Your Next Great Stock.
If nothing else, gasoline prices are falling!
Closing Bell: Dow slump puts bulls on suicide watch; BAC, MS, F, FSLR all down, AMD up
I want to buy something, but . . .
Reader Comments (Page 1 of 1)
1-16-2008 @ 10:10PM
jerry said...
Another bean counter trying to understand a company, which way above his ability to analize. Apple cannot be
judged using statistical measures. There is no other company in a world who can match it's innovation.
HP is not even in a ball park. Please stick to what you know, because stock analyst your are not!
1-17-2008 @ 8:11AM
Fred said...
In my experience, people who use Apple products tend to be hardcore drug users. This is a very fickle crowd that could desert AAPL in a heartbeat, e.g., if the newest "hot" band indicates they like the product of a competing company better. And remember, their flagship product, the Mac, was designed for people who are too dumb to operate a real computer.
Thanks for the heads up about their sending you the paperclip to open the phone card slot. It sounds like they've been having a LOT of problems with the iphone, so they've come to know what customers need to return them.
1-17-2008 @ 9:45AM
Adam Fox said...
That is a very stereotypical and misanthropic view that has no ground in this area of discussion. Comments like that should be kept to ones self. Apple's base is not all "drug users", what kind of relation is that? I'm sure plenty found that insulting. No, Apple is doing well because they make solid products that work. There haven't been any major issues with the iPhone and it receives regular software updates about every two months. Not unlike the lovely Microsoft Window Vista which had such a failed launch. Oh wait. What were the sales figures for copies of the new Mac OS X Leopard? Oh yes, 5 million sold in the first 2 months. But I forgot. It's just a "trend". They put all the things you need in that box to make it EASIER. So you're not scrambling trying to figure out what to do. It's helpful. I'm a Mac user. I don't use drugs or drink. Never have. I lost a family member to drugs. That was a very cruel and misguided statement. That is all.
1-17-2008 @ 3:12PM
spaceage said...
Fred--you sound angry. Maybe you missed the last 24 months of upside on this stock and now you are lashing out. Whatever.
Your characterizations of Apple the company sound like the typical, late 1990s, "once-ailing Apple Computer" bias normally found in uninformed media outlets trying to pimp a story to the unsuspecting public.
For example, saying that the Mac "was designed for people who are too dumb to operate a real computer" is utterly ridiculous. The Mac represented a new vision of what a computer is and how it should be used. This vision appealed equally to "smart" people as well as "dumb". In fact, you'd have to be "dumb" not to realize the benefits that the Mac introduced to all people and which have become ubiquitous in ALL computers today for ALL users.
Finally, your criticism of the iPhone and its "LOTS" of problems is the "dumbest" part of your entire message. According to independent studies, the product has overwhelming customer satisfaction levels not only for Apple but for the entire industry. No wonder it has gained 20% marketshare vis-a-vis its competition in smart phones in under 1 year!
1-17-2008 @ 11:09AM
reinharden said...
A couple of quick points. Apple's fiscal 2008 ends in September, so if you're looking for forward numbers, you've really got to use fiscal 2009 which has consensus earnings of $6.41. A forward PE of 25 versus that would be $160. But I'd argue that the $17+ per share in cash is worth at least a little additional consideration. Which puts us up around $177.
Frankly, with near-term growth of near 30%, I'd really argue for a PEG of at least 1 with the associated PE of 30 and therefore a price of $192 + $17 in cash as a reasonable mid-term price goal.
With AAPL sitting $1 above the 200 day moving average, I think I'll watch the macro economics a little bit before making any new moves. But if I didn't already have sufficient exposure, I'd sure be tempted to buy some at these levels.
reinharden
1-17-2008 @ 12:05PM
Tostitos said...
How much have your other picks gone up since December Mr. Jack? Check out your favorites HP and RIMM? And the broad market hasn't fallen 30 pts coz it is not growing at 30+%. It's an overall market correction and has nothing to do with Apple. Apple's growth story is still intact if not better. Short interest Mr.Jack?
1-17-2008 @ 12:07PM
Tostitos said...
How much have your other picks gone up since December Mr. Jack? Check out your favorites HP and RIMM? And the broad market hasn't fallen 30 pts coz it is not growing at 30+%. It's an overall market correction and has nothing to do with Apple. Apple's growth story is still intact if not better. Short interest Mr.Jack?
1-17-2008 @ 6:03PM
zeke richardson said...
Even a broken clock is right twice a day.
Jack Hough could have said sell on any one of a hundred NASDAQ stocks three weeks ago and been right. Tech has been hammered across the board including RIMM and HPQ.
I am now used to the annual temporary dips in AAPL. In '06, after reporting a record year, AAPL dropped from $85 to $50 a share. In '07, after reporting a record year (and after introducing the iphone) the stock dropped from 98 to 80.
I expect strong earnings Tuesday, conservative guidance and another $10 drop in price. I'm hoping the price goes to $130, but I think that's unlikely. If earnings are weak I'll rethink my position.
When we're looking for what's left in the baby tub this Summer I will probably not be wondering where my AAPL stock went.
1-21-2008 @ 7:01PM
Andrew Grace said...
With all due respect, Apple hardly has a high forward PE at 33 (1/16/08). Apple has tremendous momentum that can easily be sustained through continued market share penetration in PCs, phones, and media sales.
When you look at Apple you need to look at the rate of innovation. Apple is out innovating all of its competitors in software and hardware and could easily keep growing at >30% a year for many years to come. With a couple of years of compounding its PE will look downright cheap at the current price.
I haven't seen any credible thesis or scenario where its growth would slow vs competitors. And once it hits a critical mass of market share for PCs and phones there could be another acceleration as business users move over to Macs and iPhones.
1-23-2008 @ 3:46PM
charles chang said...
Mr. Jack Hough, your an idiot, I love when you start to swing at a company that's down, I didn't hear you say shit about apple, now that it's down, you will try to be a hero, with your stupid and late comments. Your an idiot, as do you know the PE of Apple, well I will tell you, it's 19, it has cash of $20 billion and if there is a stock that can weather a resession it's Apple, with no debt whats so ever and one of the most envied companies of the world, let me end by saying this, they are the future of our United State and they are the best at what they do. you Mr. Hough are nothing but a follower and your comments on Apple are unworthy of reading. Apple will be back and beating Wall Street by 14 cents, they should be proud.