Cisco Systems, Inc. (CSCO), Apple Inc. (AAPL): Are They Cheap For a Reason?

Further, Apple Inc. (NASDAQ:AAPL) is answering its critics. Earnings didn’t fall off a cliff. They raised the dividend, now at 2.7%, and are using their cash to buy back loads of stock. Best of all, the company seems at the beginning of a refresh cycle amongst their product lines, and new product categories could be coming as well. Perhaps that’s why Apple still has a PEG ratio of just 0.55. Think about that. Even with all the negative headlines, the pundits and analysts are still projecting growth.

When you combine the lowered expectations, with great valuations, and the growth prospects, there’s just too much good in Apple Inc. (NASDAQ:AAPL) to pass up. It seems to be low hanging fruit, indeed.

Value: This one’s in the bag

Over the past year Coach, Inc. (NYSE:COH) has been a case study in Mr. Market’s negative story telling. The market just won’t let the facts of Coach get in the way of a good story. The story is the much hyped tale of Coach, Inc. (NYSE:COH)’s demise. With the growth of competitor Michael Kors Holdings Ltd (NYSE:KORS) and Coach’s exposure to Europe, this “stodgy” luxury maker of foot wear, accessories, and (of course) handbags fell suddenly out of style. That was, until the facts (and a strong earnings beat) got in the way of the story.

Coach, Inc. (NYSE:COH) beat on earnings in the most recent quarter by $0.04 ($0.84 vs $0.80) and grew handily over last years $0.77. The primary areas of new growth (Men’s, Asia) were right on track, which helps calm many of the fears regarding Coach, Inc. (NYSE:COH)’s demise. With one bad story squashed, don’t fall for the next bad story: that Coach is no longer cheap at these levels, near $60.

Sure, since reporting earnings the stock has been on a small run, but it’s still well shy of its 52 week high. I think what people don’t understand is that the stock should never have been knocked down so far. Coach, Inc. (NYSE:COH)’s business is simply stronger this year than it was last year, and until it surpasses its 52-week high, it’s cheap. A lot of people just don’t realize the overwhelming brand moat that Coach has in its handbags, leading to returns on equity north of 50%. The fact that wonderful handbags are synonymous with the word Coach creates a brand habituation amongst customer that’s invaluable. If Coach, Inc. (NYSE:COH) is successful in either expanding this brand moat into new markets or growing Men’s wear, its current PEG ratio of 1.3% will be the cheapest we see for a while.

There’s multiple ways for Coach to win, and it has the wind at its back. Buy this one on any dips, it will look wonderful on you.

Cisco Systems, Inc. (CSCO), Apple Inc. (AAPL): Are They Cheap For a Reason?

Published on May 16, 2013 at 1:20 pm by The Motley Fool in News

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