Why I’m Buying More Apple Inc. (AAPL) Stock

Page 1 of 2

Spoiler alert: I’m buying more Apple Inc. (NASDAQ:AAPL) for the real-money account I manage for The Motley Fool. Most of us are pretty darn familiar with the iPhone, iPad, and Mac maker, so let’s get to the rationale.

An Apple Inc. (NASDAQ:AAPL) share that was $700 just a few months ago is now in the high $400s. The market fears that Apple’s growth prospects are no longer as rosy since its size has grown and its competition has gotten fiercer. In its latest quarter, its top line grew a still-impressive 18%, but its earnings per share actually fell (very slightly).

Apple Inc. (NASDAQ:AAPL)

Among the factors weighing down Apple Inc. (NASDAQ:AAPL)’s margins were an unprecedented number of product launches (including the smaller, lower-priced tablet offering, the iPad mini) and some supply chain bottlenecks. As a result, its gross margin fell from 44.7% a year ago to 38.6% this last quarter. There are mitigations, but that’s a pretty hefty drop. Bigger picture, there are many ways Apple’s margins can compress, including increased competition, changes in wireless carrier subsidies, faster product cycles, and the usual tech disruption that comes out of nowhere. And on both the top and bottom lines, Apple Inc. (NASDAQ:AAPL) faces a tougher road as it tries to grow an already large business.

Another criticism of Apple is its failure to return enough of its $137 billion (and growing!) cash hoard to investors. Let’s tackle this one really quickly because the criticism annoys me. First of all, almost 70% of that cash is foreign and would suffer taxation if returned. Second, breaking from the Steve Jobs mentality, CEO Tim Cook already instituted regular dividends last year. Sure, there’s plenty of room to grow them, but Apple Inc. (NASDAQ:AAPL) yields over 2% at current prices. Not an amazing yield, but not a bad start. And finally, what’s been great about Apple is that it hasn’t historically blown its cash on large, ill-conceived acquisitions. For contrast, Hewlett-Packard Company (NYSE:HPQ) has shown what truly horrible capital allocation looks like (see the Autonomy and Palm acquisitions). Nitpicking Apple for its conservative use of cash is missing the forest for the trees. We invest in Apple for its business prospects, not its ability to play Wall Street with its bank account.

Getting back to Apple’s future profitability, there is real risk — as there is with any company. I can’t predict what the future holds, but I like the odds we’re getting with Apple at current prices. At $475 a share, its trailing P/E ratio is 10.5. Factoring in that cash hoard in its entirety, it drops to 7.2. If you prefer free cash flow to net income, those multiples are even a bit lower.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

The 12 Biggest Shopping Centers in the World

The 10 Friendliest Countries in the World

Qihoo 360 Technology Co Ltd (QIHU), Actavis plc (ACT), Yahoo! Inc. (YHOO) Among 20 Long Ideas from Sohn Canada

The 10 Laziest Countries in the World

The 10 Most Polluted Countries in the World

The 10 Most Dangerous Cities in America 2014

The Top 10 Gold Producing Countries in the World

The 10 Tallest Buildings in the World

The 10 Richest Stand Up Comedians in the World

The 10 Fattest Countries in the World

The 5 Best Summer Jobs for Teens

The 10 Most Religious Countries in the World Keeping the Faith

The 10 Most Educated Countries in the World

The 10 Most Popular Cell Phones in the World

The 10 Drunkest Countries in the World

The 10 Most Expensive Private Schools in the World

The 10 Smallest Countries in the World

Walking Dead Season 5 Spoilers You’ll Wish You Didn’t Know

The 10 Poorest Countries in the World

The 10 Greenest Countries in the World

The Top 10 Countries with the Highest Population in the World

The 10 Most Visited Countries in the World

The Top 10 Star Wars Characters in the Iconic Series

The 10 Most Expensive Android Phones in the World

5 Reasons Why The Illuminati Is Real and a Threat to Society

The 6 Scariest Halloween Costumes Ever Screamed At

The 4 Biggest Hedge Fund Managers in the World Today

The 15 Most Densely Populated Countries in the World

The 10 Biggest Tea Drinking Countries in the World

Top 6 Ways to Improve Your Checkout Process and Close Sales

The 5 Most Profitable Online Businesses You Can Start Today

The 20 Most Profitable Hospitals in the US

The 5 Most Profitable Home Businesses to Start

The 7 Teams that Will Win the Stanley Cup in 2015

The Top 10 Most Expensive Digital Cameras to Snap Stunning Shots With

The 10 Highest Quality Fast Food Restaurants In America Today

The 8 Best Halloween Decorating Ideas to Spook Up Your House

10 Marvel Women that Should Get a Movie Right Now

The 20 Best Remixes of Popular Songs that Will Make You Forget the Originals

7 Most Expensive Cities in the World

5 Least Expensive Cities in the World

10 Celebrities Who Believe In Scientology

10 High Margin Food Products to Build a Business Around

The 10 Most Expensive Clothing Stores in the United States to Get Decked Out At

The 5 Biggest Kickstarter Scams That Swindled Backers’ Donations

The 10 Most Expensive Boarding Schools In the World

50 Crazy Facts About Japan You Won’t Believe

Top 10 Least Expensive Hybrid Cars to Save the Planet With

The 10 Biggest ‘Gate’ Controversies in History

The 10 States with the Highest Nursing Shortages Leaving Their Hospitals Depleted

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!