5. Everyone worries about Apple Inc. (NASDAQ:AAPL)’s margins being too high, but they are comparable with others in the industry. Even Google Inc (NASDAQ:GOOG) has operating margins over 25%, meaning the downside in margins may not be so great.
6. Return on Equity shows management’s efficiency at making investments. Apple wins this battle by a great margin.
7. With Microsoft’s large premium on virtually all key metrics, you’d expect better growth. However, Apple Inc. (NASDAQ:AAPL) grew 650% more than Microsoft last quarter!
8. Like I said, a stock reflects current fundamentals and future expectations. Apple is expected to grow at minimum five times greater than Microsoft in sales. Yet Microsoft is more expensive in all fundamental/valuation metrics. It simply doesn’t make sense!
I belong to several investment groups, both professionally and for the retail community. I speak on a daily basis to those who have just a few thousand to invest and also those with a couple hundred million dollars to invest in the market. Yet despite this wide range of connections, the only real response I hear from bears on Apple is that “it is going to fall lower.”
Unfortunately, I have yet to hear one educated reason for why it is a sell at these levels. Sure, some will feed you information about the company’s margins, its product cycle, or its concerns regarding innovation. However, last time I checked, Apple is highly profitable, is continuing to grow, and has the greatest ecosystem the world has ever seen (its growth, sales, and dominance as proof). Therefore, the only way to properly explain such large loss, while others that are more expensive (i.e., Microsoft) have near zero growth, is to accept that Apple’s downfall and current valuation is much related to psychological factors, and less related to fundamentals.
Conclusion
When I decided to write my most recent book, Taking Charge With Value Investing (McGraw-Hill, 2013), my goal was to first deeply explore the psychological side of investing but also to explain value in a very simple manner. Far too often we make investing more difficult than it has to be, overanalyzing in place of common sense. Looking at Apple, and comparing it to one of its closest competitors, the presence of value truly is common sense. I can’t assure that it will trade higher this month, or that it has reached a bottom, but what I do know is that it’s cheap, and that producing large gains are much easier when you purchase stocks that are cheap.
Brian Nichols owns shares of Apple. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple and Microsoft.
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