Apple, Meritage or Central Garden & Pet: What Stock To Buy?

I started the day with a set amount to invest. Apple (AAPL) was my first thought, as the savvy Web 2.0 world is lusting after all of Apple’s products, from the sexy upcoming iPhone release to the underreported Leopard OS release. With the iTunes store, Apple is best positioned to take advantage of legitimate for-profit use of multimedia on the web including movies, mp3s etc.

But Apple’s big releases won't make it to the market until June and there is plenty of room for fluctuation until then, especially given the growing credibility surrounding the rumors of a Google (GOOG) phone. I myself now want a Mac and an iPhone and I’ve never been an Apple lover before. Plus, what other company has two popular magazines devoted to its product (MacLife and MacWorld). Great stock if you have a couple of months and don’t care about value as much. Apple stayed about the same today. On the 3 fundamentals APPL has:

a. Forward P/E of 27.65
b. No debt and a big cash surplus
c. Price/Book of 6.88

AAPL 1-yr chart

The next stock that I threw all my cash at is Meritage Homes (MTH), a top 10 builder nationwide.

There is blood in the streets in housing. Many stocks such as this one dropped more than 50%. Homes are a necessity and will be bought. The drop was mostly caused by a sub-prime mortgage market crisis. Subprime customers are those who do not qualify for prime market rates because of limited credit.

MTH:US: Approximately 6%-7% was subprime. I think the drop is irrational exuberance, but it may take the market a while to realize. The market for MTH bounded up for over 1% in early trading. I was thinking of taking my money and selling out, but decided not to, and MTH ended the day down 2%. Damn.

Fundamentals:

a. Debt/Equity .73
b. Forward P/E 18.62
c. Price/Book .86

MTH 1-yr chart

I was also thinking of Central Garden & Pet Co. (CENT), which:

a. has a crazy low Price-Book of 0.42
b. Forward P/E 16.95
c. Total Debt/Equity 0.79

This is the stock I probably should have gone for with a large margin of safety; it has a diversified pet-supplies and outdoors product line and it ended the day up 1.5%. Though pet supplies aren’t a necessity, pet owners are a loyal bunch.

CENT 1-yr chart

Which of these would you pick?

Comments

[Dan Poarch:]

I would bank that the Google phone is not a threat to the iPhone. If anything it will be a wedge between the iPhone and the rest of the market that will reinforce the iPhone and cut-off the others. Cell phones are crap right now. There isn't one phone that actually addresses peoples' needs. Differentiation these days is over utterly useless things like how many megapixels the built-in camera has or how many MP3s the phone can hold. The industry thinks that the phone side isn't important anymore because the consumer has an interest in other features. We want a PHONE with features, not the other way around. At this point, the mere fact that I can scroll through contacts on the iPhone with ease is worth $500. There is more than enough room for Google and Apple to battle it out and both will still be winners.

I'd buy Apple all day. Long. ; )

2007 Mar 19 01:30 PM

[prow1555:]

Actually, until recently, it was three magazines: MacWorld, MacLife (formerly known as MacAddict and before that MacUser), and the dearly-missed MacHome (aka MacHome Journal, which folded last year). There, that's five magazines total over the timespan of 20+ years, and all devoted to one great company and its products. I think the choice is pretty clear: go Apple. And, welcome aboard!

2007 Mar 22 03:12 PM