Apple Has Become The Most Underrated Stock

| About: Apple Inc. (AAPL)

Here are two companies.

One is in a no-growth industry. It is making money, paying a dividend, and its annual sales are up almost 20% from three years ago. It is a great, heart-warming story, one most investors have been avoiding - still - so that it trades at a P/E of 9 despite a yield that should top 3% this year.

The other is in an industry that is still growing. It is making money hand over fist, more than doubling revenues from 2010-12, with a profit margin of 25% and an operating margin that's even higher. It has no debt, more cash than some countries, its dividend now sports a 2.5% yield, and it trades at a P/E of 9.6, little different from the first company.

If you haven't guessed by now, the first company is Ford (NYSE:F). The second is Apple (NASDAQ:AAPL).

Now, there were good reasons for Apple's fall. Everybody was in it, and when everybody is in anything it has to fall because there are no more buyers. A market cap of $600 billion is a significant portion of the Nasdaq market, and money that wants to move and make money is going to find other places to play.

But please - $21 billion in profit on $54.5 billion in revenues and you call that a miss? Really? Really. The iPhone is gaining share against Android, against the whole ecosystem, and against Samsung (OTC:SSNLF), which everyone insists is about to kill the company. Yes, the iPad has competition. But you'd really rather own Microsoft (NASDAQ:MSFT), whose earnings multiple is now nearly double Apple's at 16 and has half the revenues, declining margins, and annual sales growth of 5% going back several years, and which is about to lose the next interface war to a startup?

Apple is just one surprising quarter, and one product announcement, from a price over $500/share. We know that because we've seen it happen before. It's a streak stock, everyone piles in and everyone piles out. Right now, they're all piled out.

Don't believe me. Read this site. Dark hints of stock buybacks being used to prop up the stock. Intimations that some of its products are being sold at a discount by - horrors - Wal-Mart (NYSE:WMT)? Comparisons between Apple and the falls of Cisco (NASDAQ:CSCO), Microsoft, and Netflix (NASDAQ:NFLX)? These are just the kinds of stories you read when people are looking for any excuse to dump something. They're as desperate, in their way, as Amr Zaky was when he called for a $1,000 price even after the stock had rolled over in October.

I'm not predicting Apple going to $1,000 here. I am saying that a market-average P/E would be a 50% gain. I am saying that, at these levels, Apple is underpriced and due to go higher. I can't tell you when, I can't tell you how much - I'm not that smart. But I know a bargain when I see one. Even if it does need a little polishing to shine. And if I'm wrong, you still get a yield of 2.5%.

Disclosure: I am long AAPL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.