Can Anything Bring Apple Back?

| About: Apple Inc. (AAPL)

Reports that Apple (NASDAQ:AAPL) will do exactly what its critics have told it to do -- bring out a line of low-priced iPhones and a "phablet" to compete with Samsung (OTC:SSNLF) -- have so far failed to move the stock. Apple shares remain stuck in the trading range it entered after making its moves to increase the dividend and buy back stock in April -- a floor of about $400 per share and a ceiling of about $460. It currently trades at $430.

At this price, it remains an enormous bargain. You're getting a dividend of 2.83%, and paying under $10.30 for each dollar of earnings. Compare that to the nearly $18 being paid for each $1 of Microsoft (NASDAQ:MSFT) earnings, the nearly $14 being paid for each dollar of IBM (NYSE:IBM) earnings, and the nearly $26 per dollar being paid for Google (NASDAQ:GOOG) earnings and the bullish case becomes clear.

Want another metric? Investors are currently wiling to pay $5.60 for each dollar of Google revenue. The comparable figure for Apple is about $2.50.

The reason has to be that investors don't believe Apple can maintain its revenue and earnings pace in the face of increased competition from devices using Google's Android software. The trends don't look great -- only 10% more sales in the March quarter than a year earlier, with margins going below the 25% mark for the first time. Operating income for the March quarter was actually 20% less than for the same period in 2012.

Thus, the answer to our question becomes obvious. For investors to believe in Apple again, it needs to gain sales and earnings momentum over its present torrid pace. (A 25% operating margin is a torrid pace.) Some analysts question whether Apple can even compete with Samsung in the phablet market.

The most recent report on market shares, covering the first quarter, shows Apple continuing to bleed market share against Android, with unit growth collapsing into the single digits according to Business Insider. But Apple Insider spins those very same numbers into a positive story. It notes that Apple's U.S. market share is now close to 40%, and that number is not fragmented among different companies but all Apple.

What seems clear, in other words, is that Apple's problems do lie in the global market where it's considered a premium brand, unaffordable, and going against equivalent products that are super-cheap. Reuters says that the $100 plastic iPhones will ship in the fourth quarter.

It does no good at this point to pound the table for Apple stock. Opinions on it will change when they change. But you can get a nearly 3% dividend while you wait, and the lowest price/earnings multiple in the industry.

Isn't that at least worth a little speculation?

Disclosure: I am long AAPL, GOOG. 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.

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