Apple Around $50 Might Be a Core Holding

Could this be another example of our economy's "Jobless Benefits"?

The news of Steve Jobs's medical condition sent the shares of Apple (AAPL) tumbling after hours Wednesday and in Thursday's regular session. AAPL shares have traded in a 52-week range of $79.14 - $192.24.

As of September 27, 2008 the company held almost $25 billion in cash or about $27 - $28 /share with no debt at all. Deduct $27 from the current quote and the business itself is selling for $55.75 /share. With trailing earnings of $5.36 for the FY ended last September that means AAPL shares are just over 10x operating earnings if you factor out their cash.

Worried about the "Jobs Report?" Take a longer term view out to January of 2011 and sell a put or two at lower than today's price.

Strike ….………..… Bid ……… Net Cost if Exercised

$60 ……………… $13.00 …………….. $47.00

$70 ……………… $17.50 …………….. $52.50

$80 ……………… $22.80 …………….. $57.20

While nobody can assure you that Apple shares will not be below your net purchase prices from the above list I can tell you that their shares have not traded hands below $79 since 2006. Even in 2006 the absolute low was $50.20 and EPS for the 2006 FY (ended Sep. 2006) were $2.27 or just 42.4% of FY 2008's final number.

Disclosure: Author sold AAPL puts today as described above.

Comments

[Turley Muller:]

If you subtract cash from stock price then you have to subtract the 60-70 cents of interest income from the $5,36 EPS. before computing the multiple. .

Jan 16 06:21 AM

[Paul Price:]

Fair enough.

Would you buy Apple at 11 - 12 times earnings?

Jan 16 06:30 AM

[investor88:]

Can buy Apple at 11-12 x earnings but it is no sure thing in the face of turmoil in the economy.

Jan 16 09:12 AM

[Glen Bradford:]

Another good call by Paul. I own AAPL, I bought in around $90. Looking to buy more if it continues to go lower (I hope it does!) Selling these puts is a relatively safe idea.

Jan 16 10:30 AM

[Paul Price:]

HEARD ON THE STREET JANUARY 17, 2009

Attention, Investors: Apple on Sale
By MARTIN PEERS

The biggest surprise this week was not that Steve Jobs has to go on medical leave. It was that the shares have dropped only 3.5% since the chief executive and architect of Apple's revival disclosed his news.

The reason: Apple stock already had lost the Steve Jobs premium. It already was near a 52-week low due to recessionary worries and speculation about his health. Now, on some measures, Apple is valued below rivals such as Hewlett-Packard and Dell.

Apple CEO Steve Jobs is taking a medical leave of absence until the end of June.

Apple's enterprise value is roughly six times free cash flow from the past 12 months. That compares with H-P on about eight times and Dell on 8.5 times, according to Barclays Capital analyst Ben Reitzes. Apple looks pricier on a price-earnings basis: 15 times trailing 12 months against roughly seven to 10 times for Dell and H-P. But some of Apple's premium disappears when earnings are adjusted for Apple's policy of recognizing iPhone revenue over two years, rather than when the cash comes in the door.

Even assuming the worst -- that Mr. Jobs doesn't return to his post -- the stock should trade above its peers. It has an unbeatable brand name in technology and a diversified product lineup. Even though its products are high-end discretionary purchases, making them vulnerable to a nasty recession, Apple has broadened its range to include lower price points.

Majestic Research, which tracks Apple sales, reported Dec. 22 that holiday season demand, particularly for the iPod and laptops, had been resilient. On Wednesday, Apple's December quarter results will clarify the business picture. Mr. Jobs's future will remain uncertain. But right now, Apple looks like a bargain

Jan 17 07:52 AM