Apple Inc. Is Still A Value Play

Apple Inc. (NASDAQ: AAPL) will reward patient investors.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Three months ago, after Apple (NASDAQ: AAPL.US) reported its first quarterly year-on-year profit decline for 10 years, I set out why I see Apple as a value play. But I warned that things would get worse before they got better, with keen Apple-watchers likely to be disappointed by the lack of new product innovations. Investors would need patience to see Apple’s fundamental value reflected in a stronger share price.

Well, at least the first part of my prediction has proved true! From $408 at the end of April the shares sank to $394 last month, recovering to $430 today.

News flow

The news flow hasn’t been inspiring. The iPhone’s new operating system got most attention for the visual re-design of its icons, which went down badly with Apple fans. And the company has been found guilty of leading a conspiracy to fix the price of eBooks. It says it will appeal but otherwise the next step is a trial to establish damages.

The most recent set-back is news that Apple is frantically hiring engineers to work on the iWatch, suggesting that launch of the product is at least 12 months away.  CEO Tim Cook had promised new product announcements starting from this autumn and running through next year, so the iWatch looks like it will be at the back end of that timetable. That’s an epoch in Apple-watching time.

Fundamental value

But I still believe in the fundamental value case for Apple. It’s a dominant — albeit no longer the dominant — player in a market that still has lots of untapped potential. Emerging markets offer big growth prospects, with China the prize jewel. Competition is tough and margins have shrunk, but that’s what happens in maturing industries.

Apple is cheap. The shares are trading on a forward price-to-earnings ratio of 10.6, just half the S&P 500’s 21.1 and well below the industry average of around 15. It yields a decent 2.7%, and there’s plenty more firepower available to boost shareholder returns. It’s a prodigious cash generator with a $140bn cash pile.

Mr Cook more than doubled — to $100bn, a quarter of Apple’s current market cap — the amount of cash to be spent on a share buy-back programme lasting to the end of 2015. In itself that should, in the broadest terms, increase earnings per share by a third.

Innovation

Of course, to survive — let alone thrive — Apple must innovate. But that’s its stock in trade, so it’s not a massive bet to have faith new products will come along. The expectations built up around Apple make it a victim of its own past success.

However the short life-cycles of consumer electronics products, and the fickle nature of consumers, do add vulnerability to Apple’s earnings.  So it doesn’t qualify for the Motley Fool’s pick of the best five dependable shares that could form the core of any portfolio — though, like Apple, they too have dominant market positions, healthy balance sheets and robust cash generation. To find out which they are, you can download this exclusive report — it’s free.

> Both Tony and The Motley Fool own shares in Apple.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

More on Investing Articles

Silhouette of a bull standing on top of a landscape with the sun setting behind it
Investing Articles

3 beaten-down shares to consider buying before the next bull market

Instead of waiting for stocks to start moving higher, Stephen Wright thinks investors should look for shares that might be…

Read more »

Black father and two young daughters dancing at home
Investing Articles

UK investors piled into these S&P 500 stocks during the Liberation Day sell-off…

Our writer wasn't surprised to see AJ Bell investors buying into the S&P 500 earlier this month, though one popular…

Read more »

UK coloured flags waving above large crowd on a stadium sport match.
Investing Articles

A stunning 10% dividend-yield stock to consider for a Stocks and Shares ISA!

Harvey Jones says Stocks and Shares ISA investors should consider FTSE 250 fund manager aberdeen, a recovery stock that pays…

Read more »

UK financial background: share prices and stock graph overlaid on an image of the Union Jack
Investing Articles

Here’s why the AstraZeneca share price dipped 3.7% in the FTSE 100 today

Despite AstraZeneca’s falling share price today, this writer believes the London-listed pharmaceutical giant could be worth a closer look.

Read more »

Photo of a man going through financial problems
Investing Articles

I asked ChatGPT to name 3 growth stocks to consider buying in today’s dip. Here they are!

Harvey Jones wants to use the stock market sell-off to buy some great value growth stocks and decided to call…

Read more »

Serious thinking young woman
Investing Articles

Are Associated British Food shares now one of the FTSE 100’s greatest bargains?

Associated British Food (ABF) shares have slumped on news of tough retail conditions. Is the FTSE 100 stock now too…

Read more »

Businessman hand stacking up arrow on wooden block cubes
Growth Shares

Putting £450 in the stock market each month could be worth this much in a decade

Jon Smith explains which sectors could offer high growth potential for the coming decade and how to make the stock…

Read more »

Finger clicking a button marked 'Buy' on a keyboard
Investing Articles

As H1 results send the Associated British Foods (ABF) share price down 8%, is it time to buy?

This blip in the ABF share price on interim results day might be just the buying opportunity that patient long-term…

Read more »