For most of 2012, Apple (AAPL) wasn’t just cream of the crop in the world of tech stocks, but arguably one of the hottest stocks out there … period.
And then the fall happened. From the start of the year to late September, AAPL stock soared over 70%. But after briefly topping the $700 mark in early autumn, shares of Apple stock began a downfall that wouldn’t find a bottom until the summer of 2013.
Of course, with 40% gains in the book since late June — double the gains of the tech stocks making up the Nasdaq — the question is whether Apple stock can build on its momentum and keep climbing in the new year.
So we asked a few InvestorPlace experts just that.
Is AAPL a smart buy heading into 2014? Read on to find out whether our top contributors think Apple stock is poison or ripe for the picking.
AAPL Stock Is Solid
By Tom Taulli
Apple (AAPL) stock has enjoyed a nice run lately and I think the momentum will continue into the new year. The main reason is that the company’s growth will likely get back into gear. And perhaps the biggest driver will be from the China Mobile (CHL) deal. Keep in mind that that company’s distribution includes over 750 million subscribers.
At the same time, AAPL stock should get a boost from the clear fact that products continue to resonate with consumers. The Apple iPad has become the must-have item of the Christmas shopping season, as seen with strong sales at Walmart (WMT) and Target (TGT).
It also helps that AAPL has broadened its product categories. For example, there are offerings like the iPad Air, iPad Mini Retina, iPad Mini and of course, the traditional iPad. In other words, Apple should have an easier time satisfying different consumers in terms of tastes, needs and income levels. All in all, all this should help to further boost the fortunes of AAPL stock.
Then there is the valuation on AAPL stock, which is still reasonable. Consider that the forward price-to-earnings ratio is only 11X, which compares to 20X for Google (GOOG) and 13X for Microsoft (MSFT). What’s more, Apple stock has a decent dividend yield of 2.3%. Going into the 2014, this may see an increase as well, especially considering Carl Icahn pressure.
Let’s face it, a value play in the mobile industry is tough to find. Just look at the outsized valuations of companies like Facebook (FB) and Twitter (TWTR). But one way to get a good value and ride the mobile wave is to buy AAPL stock.
AAPL Stock Is a Bargain Buy
By 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.
AAPL Stock Is Ready to Grow
By Jeff Reeves
Editor, InvestorPlace.com and The Slant
Everyone knows the basics behind Apple (AAPL) — AAPL stock has a decent forward P/E of 12, which is lower than the market broadly and especially large cap tech. There’s also $146 billion in cash in the bank, a $60 billion buyback plan running through 2015 and a nice 2.2% yield.
These are powerful arguments for stability. But what about growth?
Consider these three reasons why AAPL stock should keep growing:
China: We recently got confirmation of a deal between AAPL and China Mobile (CHL) to put the Apple iPhone into the biggest telecom market in the world. Considering that the Apple China market share was just 5% to start 2013 … that’s a lot of untapped customers.
e-Commerce: Sure, Android has an edge on raw market share. But tech giant Adobe (ADBE) recently estimated that iOS-based devices from Apple drove 77% of holiday e-commerce done on mobile devices. Android? Less than 5%. So while market share matters, don’t discount the power AAPL has to connect with actual transactions. Remember, Android and Motorola don’t contribute anything to Google (GOOG) earnings right now — and profits are what investors watch most.
Momentum: In this market, a year can change a lot. And now Apple stock is testing new 52-week highs and has snapped back 40% since July. Sure, AAPL stock may not top $700 again anytime soon. But in the next few years anything’s possible — and in the short term, $600 seems to be the next stop. Don’t bet against a momentum play in this market — especially one like Apple where there are still plenty of bears out there to keep the stock honest.
As of this writing, none of the contributors had a position in any of the aforementioned securities.