Through all the volatility that we have seen in the past couple of weeks, capped by the unfolding tragedy in Japan, an important quiet milestone has been reached by one very well followed and therefore misunderstood company and stock. The company is Apple (NASDAQ:AAPL).
The stock continues to trade above $350, building a base for the next leg up. When will this happen? It could be when earnings come in on April 19. It could occur in the predictable runup to earnings. It could happen when the market breaks out to the upside – if the market breaks out to the upside. It will happen.
Apple is now selling at roughly one half its historical valuation, this shift occurring for a variety of reasons. The first is that Wall Street analysts typically use blackberries and Dells – no kidding. The second is the huge market cap – second largest behind ExxonMobil (NYSE:XOM) and of course ExxonMobil is a “serious” company, the equivalent of a man’s man. It brings stuff out of the ground, negotiates with governments, speaks with a Texas accent and so on. Apple only makes adult toys that no one actually needs, they just want them. The third is “growth has to slow.” The fourth is willful blindness – despite being a second generation product with modest evolutionary changes to the first generation iPad, the iPad 2 is sold out in Apple stores and at the website for 3-4 weeks. ChangeWave and other surveys show the iPad putting a serious dent in laptop sales, evidenced by weak results at the Hewlett-Packard (NYSE:HPQ) consumer unit last quarter. No matter, say the naysayers.
Sorry, guys and gals on Wall Street, you are decidedly wrong. The paradigm shift – corny phrase but it works here – from the central computer to the desktop was not believed on the Street. Prime computer was the number one performing stock in 1982, the year the IBM PC hit the streets. What ever happened to good old Prime? And Digital Equipment? And Honeywell (NYSE:HON)? Burroughs? Univac? Control Data? Data General? I made my point.
We are now seeing the shift from the desktop to the mobile. The interface is there – mobile means personal, even for people conducting business – and the key here is the interface, ease of use, disciplined software and integrated applications. That means Apple.
In my humble opinion, the stock is dirt cheap. The company’s gross margins are two to three times that of traditional computer makers such as Dell (NASDAQ:DELL). The company has tiny market share in cell phones – less than 1% worldwide – meaning it has a great deal of room to run. If you bundle netbooks, low end laptops and tablets together, it has less than 5% market share worldwide. It has less than 2% market share worldwide in personal computers. And it knows how to execute. Apple doubled in size during the Great Recession and will grow during the next one (that begins in Q4 or Q1 of next year, at least in the real world.)
I may be wrong, short term, on some movements of the stock but I am not about the company. That is a done deal. Hard to believe, but with Apple, buy and hold is back.