David Evanson and Oliver Pursche
Minyanville.com, Winter, 2013
Apple’s (NASDAQ:AAPL) stock has been slapped around a bit lately and I couldn’t be happier about it.
It’s a screaming buy. With the most recent swoon, the yield went to 2%, equivalent to the yield of the S&P 500 (INDEXSP:.INX). While there’s a lot more risk in AAPL, as a single stock, it’s hard to disagree that the growth potential of AAPL dwarfs the aggregate growth potential of the S&P 500.
But that’s not the main argument. In my view, the stock is egregiously mispriced. With a consensus estimate of $49.51 (based on the forecasts of 39 analysts, to September 2013), the forward P/E of AAPL is 10.96x the consensus 2013 forecast. That’s less than GE (NYSE:GE). That’s less than Wal-Mart (NYSE:WMT). That’s less than Post-it maker 3M (NYSE:MMM).
In short, the way Apple stock is priced right now, current investors are not being rewarded for growth. However, that means new investors can buy the stock without paying a premium for growth.
It’s interesting to do a bit of an etiology of the current perception suggesting Wal-Mart has more growth ahead of it than AAPL. First, there was the earnings miss reported in July. Then there was the so-called map app fiasco. Then there were the October results that fell short of expectations with a slowdown of iPhone sales and lower-than-expected iPad shipments.
I’m not going to parrot the company’s remarkable achievements, historic cash hoard in cash, and 2% dividend. What I am going to say is that one of the joys and frustrations of the stock market is the degree to which human emotion plays a role in short-term pricing. Investors overreact to bad news and as a result, stock prices tend to drop disproportionately to the true and ultimate impact of bad news.
Certainly an earnings miss followed by lower-than-expected sales in two core products is a cause for concern. But selling off AAPL shares to the point where they reflect a no-growth scenario? Now that’s an overreaction!
My forecast? I expect AAPL shares to hit $800 in 2013.
I might add that if you want securities that move in tune with logic, buy and/or trade bonds. The prime rate and a company’s cash flow pretty much set the agenda for pricing. Unless of course, there’s a housing bubble and the rating agencies go verklempt. In that case, all bets are off.
When you are a buyer, this is the where they joy comes in (and when you are an owner or a seller, this is where the frustration sets in).
The way Apple is priced right now, the stock is not being rewarded for growth.