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Should You Snack on AAPL Stock in 2014? Our Experts Weigh In

Apple stock has momentum heading into the new year

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AAPL Stock Is a Bargain Buy

aapl-stock-apple-stock-buy-2014By Dan Burrows

Apple (AAPL) is a screaming buy for 2014, and not because of anything it’s going to do on the product front. Rather, Apple stock is a must-have for buy-and-hold investors because the valuation on AAPL is too tempting to pass up.

First, let’s subtract the $45 in cash per share that AAPL boasts, because we’re paying for future earnings, not the war chest Apple has amassed. That makes the forward price-to-earnings multiple (P/E) on AAPL stock 10.8. (With the cash, it’s 11.8.)

By either measure, AAPL stock is a screaming buy because over time, valuation reverts to the mean. Over the last five years, Apple stock has an average forward P/E of 16, according to data from Thomson Reuters Stock Reports. By that measure, AAPL stock is on sale by more than 30%, including the war chest or not.

Valuation looks even more favorable on a trailing earnings basis. APPL stock has trailing P/E of 14, which represents a 26% discount to its own five-year average.

With cash or not, by both forward and trailing P/E, Apple stock is on sale.

AAPL is even more compelling when compared to the broader market. At 16 times forward earnings, the S&P 500 looks a lot pricier than Apple stock. That’s especially true when you consider that AAPL has much stronger profit potential. The S&P 500 has a long-term growth forecast of 9.7%. That makes the price/earnings-to-growth multiple 1.85. Meanwhile, at 14.3%, AAPL has a much higher long-term growth forecast, but fetches less than 11 times forward earnings — again, excluding all that cash. That makes the PEG on Apple stock 1.32.

Put it together and Apple is a whopping 40% cheaper than the broader market. That can’t last. At some point, the sentiment on Apple stock will turn more positive, the multiple will expand, and shares will rise even more.

Article printed from InvestorPlace Media,

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