- Apple stock fell under $100, $700 on a pre-split basis, on January 7 2016.
- At this price you're getting Apple shares for barely 8 times earnings, less cash, plus a 2% yield.
- Most of the rumors about problems are just that, rumors. This is a good stock to own, more so now.
Trading below $100 as on January 7, Apple (NASDAQ:AAPL) should be the greatest bargain in the history of planet Earth. Take out the cash and Apple stock is now trading at a Price/Earnings multiple below 8. Apple's Price/Sales ratio is less than 2.5, and it’s well below 2 when you take out the cash. Apple is a tech stock, the mightiest generator of sales and profits the world has ever seen, and the dominant player in the biggest market. Yet Apple's dividend yield is now up to nearly that of the 10-year U.S. bond, after the stock fell off.
But when perception grabs a stock, the bears go crazy. There are “reports” of cutbacks in Apple’s supply chain, panic over workers at the Foxconn assembly plants going on vacation.
Anecdotally, there is such a thing as peak iPhone. When my daughter decided her Apple iphone 3 was getting old, my son was happy to have it. But what she got instead was a 5, not a 6. Unlike Androids (I’ve gone through literally a half-dozen while she has owned her 3) Apple iPhones last-and-last, darn it. And my son is quite happy with his new phone, in no hurry to upgrade.
Again, that’s an anecdote. My daughter’s father is a miser. But Apple’s efforts to force obsolescence with new features isn’t entirely effective, and there is an active market in older models. This actually speaks well to the phones, but to investors who just want to see everyone buy new stuff every year it’s troubling.
Apple’s announcement that it made $1.1 billion from apps in just two weeks over the holidays doesn’t seem to get through. The fact that Fitbit Inc (NYSE:FIT) was killed after unveiling a lame competitor to the Apple Watch didn’t impress Apple shareholders. For every two people worried about Apple's iPhone sales, there are probably three who believe the Apple Watch isn’t being upgraded fast enough, that sales aren’t big enough to move the needle.
Apple has to sell over 48 million iPhones a quarter just to stand still and to match last Christmas it has to sell 75 million. With the biggest markets saturating and the remaining markets unable to afford the price tag, the perception is it can’t be done.
The perception is also that the Apple iPad is flailing, that Mac PC software sales are broken, and there is no way that Apple will ever again get a premium Price/Earnings multiple-- although, is giving Apple an 11 when the S&P is nearly double that really fair value?
The real question for Apple investors is whether all this represents the kind of “blood in the streets” moment when it’s right to jump in and buy, buy, buy. Given the turmoil in the market over China, the latest downturn probably has a few days to go, and I’m personally keeping my powder dry until the selling stops and we have a relatively quiet day, even if that means missing a snap-back rally on Apple.
But I’m an investor, not a trader. Your mileage will vary. Still, Apple stock is definitely on my buy list when things calm down. Near the top of it, in fact.