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A Relatively Easy Call - Time To Accumulate Apple

|Includes: Apple Inc. (AAPL)

If you haven't picked it already, AAPL is a good bet if you have a horizon at least as long as Q1 2013.

From a record high of $705.07 a share in September 2012, Apple has lost close to a quarter of its value. From a technical indicators angle, the stock is trading well below 200-day moving average of $610 and it's 50-day moving average of $607. Though it is tempting to reach a judgment that Apple's heady growth days are over and hence the stock needs to be priced sub-500, even a quick glance at numbers reveal otherwise.

As of close of market on Nov 16 2012, Apple's stock price of $527.68 implies a P/E of 11.95 on an EPS of $44.15 for the 12-month period ended September 2012. That's not a bad deal for a company which produced an EPS growth of over 59% even in the past full y-o-y period. And, considering year ending Sep 20-13 consensus forecast of ~$50, the current price implies a P/E of just a little over 10 and a pretty impressive PEG even if EPS growth slows down compared to the past over the next 1-2 years.

From a business fundamentals perspective, Apple still retains a healthy share of the smart phone and hence mobile operating system wallet share, despite the rapid rise of Android-based systems, led by Samsung. Though Android OS market share increased from 57.5% in Q3 2011 to 75% in Q3 2012, Apple in fact increased iOS market share from 13.8% to 14.9% in the same period - most of Android's gains has been at the expense of Blackberry and Symbian OS, which fell from a combined 24.1% to 6.6%! More importantly, if we included non-phone devices like tablets, iOS in fact still leads with a 30% market share as against Android's 27%. As Tim Cook remembered to mention in the iphone5 launch event, iOS in fact increased tablet market share from 62% in Q2 2011 to 68% in Q2 2012! And it remains to be seen if late players like Microsoft can create an impact, if any. To top it all, the overall smart mobile and tablet market (especially) is still growing at a healthy clip to avoid concerns on a 'crowded' market.

Not that there has not been chinks in Apple's armor off late - not-so-great reviews on the ipad mini followed wide-spread criticism of maps in the iphone 5. In fact, a recent management shake-up involving Scott Forstall (responsible for iOS, blamed for response to the maps problem) and John Browett (retail chief who tried stepping in to the shoes of Ron Johnson!) is pointed out as an ominous signal. But, we did hear similar rumblings after Steve Jobs passed away in Oct 2011. As long as the internal customer-focused design-heavy culture continues uninhibited and as long we don't see Tim Cook and Jonathan Ive going anywhere, there is little reason to generate any significant worry.

So, what's actually causing the recent sell-off? As many have already pointed out, this is most likely driven by profit taking linked to concerns around a capital gains tax hike in 2013 - thanks to recent election results, combined with the need to solve the country's fiscal problem in the near-term! The timing of the sell-off and the fact that daily volumes have been significantly higher than the 50-day average of 20.6 million shares a day (Nov 16 volume was over 45 million!) support this hypothesis.

In short, this is a good time to accumulate as long as you are not going in with a very short-term horizon. Despite the significant number of downward EPS and share price forecasts over the past 4 weeks, 12-month analyst forecasts still range from a low of $600 to a high of $1,111 with a median of $765!

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.