Are 2010 Apple Shares the New 1995 Dell Shares?

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 |  Includes: AAPL, DELL
by: Wall St. Cheat Sheet

Michael Dell versus Steve Jobs. The laggard versus the first-moving innovator. The new underdog versus the new favorite. One man names his company after himself, the other names the company after the idea-generating fruit. Is Steve Jobs the New King of the World? Let’s take a deeper look under the fundamental hood of each company to determine today’s King:

Apple (NASDAQ:AAPL): $267.04

At a time when stocks are out-of-favor, momentum is the trigger for the bandwagon buyers to begin nibbling slowly in the current environment. Pullbacks have continued to present buying opportunities for Apple shareholders. After continuing to blow away analyst estimates, Apple now trades at with a trailing P/E of 20 and a forward P/E of 15. Rewind the picture, and for many years Apple was trading with a growth P/E closer to 30. Do you think Apple is growing? A recent chart at Business Insider depicts Apple computer sales are matching Dell computer sales on college campuses this year:

Click to enlarge

Even though the chart above is just a survey sampling, I’m a believer in the Apple brand power and the cross-over to each product line. If millions began buying iPods, then iPhones, now iPads, why not iMacs and Macbooks? The brand defines “cool.” Therefore, consumers are willing to trade up to be seen with the iconic technological status symbol of 2010.

Although Apple is a $240+Billion market cap company that has seen its shares rise from $7 to $267 in 7 years, we still marvel at the beauty of a $40+ Billion cash position with ZERO debt on the balance sheet. With a year-end estimate of around $15 earnings per share, Apple would sport a forward P/E of 17.80 today.

If you truly believe Apple is in growth mode with a growth product like the iPad and a growth market like the PC/laptop market on college campuses, then a forward P/E of 30 on $15 earnings per share puts Apple shares closer to $450 at year end. App monetization from the iPad is still in its infancy as we all know what Apple generated from the music market with the iPod, not just millions, but billions in sales. Momentum is all this market needs and the bandwagon buyers will start moving money from dead money markets and bonds to the old world of under-valued stocks.

Dell (NASDAQ:DELL): $12.31

Meanwhile, Michael Dell mastered the art of bringing the widget to the people from his dorm room in Texas. Product design and creativity were not at the forefront of the company’s strategic initiative, just selling the most amount of PCs and laptops at the cheapest price. At $12.31 per share today, and sporting a huge cash position of over $12 Billion or $6.40 cash per share, Dell has the potential to claw its way back into the tech game. However, with $5+ Billion in debt accrued, Dell’s ability to weather a hiccup or nasty storm of a late-to-the-game product strategy is more painful a hit than for Apple. Dell’s competitor can take bigger calculated risks in the marketplace at a time when market share is growing in the PC/laptop space.

Dell currently has a trailing P/E of 12.55 and by no means is it in growth-mode like Apple right now. So Dell’s current P/E is a more realistic valuation. Whether Dell’s early signs of PC/laptop market share depletion are a warning sign to the year-end $1.28 earnings per share are yet to be told.

Dell has been stuck in a lost decade following the steaming success of the ’90s. Dell’s turnaround has yet to be written. First-mover advantage or even product innovation has been missing from the Dell picture lately. No wonder Dell needs to find the right company to acquire, because the internal idea lab has been dry for a decade from the tech boom hangover.

Disclosure: No positions