The market’s downturn has plagued the economy. Good stocks now look bad and bad stocks are either bankrupt, bought, or receiving government support. The economic crisis, though, is hopefully coming to an end. With many experts saying that the market is near its bottom, this presents a perfect time to buy. No one can say the exact date of bottoming out, but no one has a crystal ball and stock values are still undervalued, even if not at their lowest points.
The value investors should be excited about the current market with stock prices well below their book values. Many stocks within the technology sector fit the bill of being severely undervalued. With the technology sector being one sector that rallies quicker from a recession than most other industries, this industry holds stocks that will rebound to their appropriate price on the market.
One stock within the industry that can see the light at the end of the downturn is Apple (AAPL). Apple is severely undervalued at its current price. The price has fallen recently due to speculation about Steve Jobs, Apple’s CEO, and consumer spending decreasing due to the financial crisis. Even though Jobs plays a crucial role in the development of new Apple products, he has more recently been used as a figure head. The Apple R&D team is one of the top teams in the business, among the likes of Google (GOOG). The speculation surrounding anything related to Jobs' health has poorly affected the stock, for purely speculative reasons.
A lot has been made of Apple’s poor November sales in the desktop area. Desktop sales were down 38% from last year in November, but we must look at this number closely. This year, Thanksgiving was the latest it could have possibly been. This allowed for less time to buy for the holidays in the month of November. Also, desktop sales have declined for most companies in sales to non-businesses. This seems to be more of a shift away from desktops than poor sales. This same month, notebook sales were up 22%, showing growing sales in Apples expensive MacBooks.
Apple’s success comes from its loyal customer base. Most customers that have bought Macs do not switch to PCs, but more and more PC customers make the switch to Macs. The likes of Dell (DELL) and Hewlett-Packard (HPQ) compete for PC sales. This forces both Dell and HP to lower their prices, hurting their bottom line. Apple can afford to keep their prices because they are putting a price on the operating system, not who uses the operating system the best.
Apple also offers such a wide variety of products. The iPod and related products will be able to help Apple weather the economic downturn with more affordable products. iPods and iTunes and related products make up 30% of Apple’s 2008 sales. The growing strength of the iPhone now being sold at Wal-Mart (WMT) will also help to strengthen already strong iPhone sales. There have also been rumors that the iPhone might be released on other carriers besides AT&T (T), diversifying who can buy an iPhone.
Bottom line: Don’t forget about R&D and Apple's great pipeline.
- Price: 85.61
- P/E: 16.02
- EPS: 5.36
- Price/Book: 3.59
- Profit Margin 14.88%
Disclosure: Author holds a long position in AAPL
