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

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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.

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