Apple Inc. (AAPL): Here’s What You Should Expect

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Investor sentiment in technology can change quickly. Apple Inc. (NASDAQ:AAPL) had previously fallen out of favor on Wall Street with the uncertainty of what its next great product would be and worries about a shrinking gross margin. However, the recent dividend boost and share buyback program has shifted the negative sentiment to the positive side.

Here’s a glance at Apple Inc. (NASDAQ:AAPL)’s net sales for Q2:

Product Change in Net Sales y-o-y % of Total Net Sales Q2 Net Sales
iPhone + 3% 53% $22.9 billion
iPad + 39.6% 20% $8.7 billion
Mac + 7.4% 12.5% $5.4 billion
iPod – 20.3% 2.2% $962 million
iTunes, Software, Services + 29.7% 9.4% $4.1 billion
Accessories + 15.4% 3.2% $1.4 billion

There is positive growth in each product category except for iPods. It is interesting to note that the less thought of iTunes, software, services, and Accessories categories are growing, and together comprise 12.6% of net sales. That is now higher than the net sales of the Mac.

Apple Inc. (AAPL)Apple Inc. (NASDAQ:AAPL) is clearly undervalued in relation to the market and in relation to its competitors. This undervaluation is evident with a trailing P/E ratio of 10.63, a forward P/E ratio of 10.05, a PEG of 0.50, and a price to book ratio of 3.54. The SPDR S&P 500 has a trailing P/E ratio of 14 and a forward P/E of 14.4. The S&P 500 currently looks overbought which may lead to some consolidation in the form of a downward correction or even sideways price action.

The market doesn’t run-up in a straight line for too long without pullbacks along the way. I think Apple Inc. (NASDAQ:AAPL)could outperform the market in the near-term as its valuation remains below the market and as sentiment has shifted to the positive side for the company.

Google Inc (NASDAQ:GOOG) is now valued higher than the market, and much higher than Apple with a trailing P/E ratio of 24.8, and a forward P/E of 15.5. This premium valuation could cause Google’s stock to correct or pause a bit in the form of downward or sideways price action. Google is expected to grow earnings at about 15% per year for the next five years. This is lower than Apple Inc. (NASDAQ:AAPL)’s expected earnings and Google Inc (NASDAQ:GOOG) does not reward shareholders with a dividend.

Samsung is also valued higher than Apple with a trailing P/E ratio of 12.9 and a forward P/E of 12.3. Samsung is eating into Apple’s market share with its less expensive smartphone offerings. However, Apple still maintains a loyal following with its perceived device & software quality and user-friendly ecosystem. Samsung has its place in the market as the price-conscience choice, while Apple Inc. (NASDAQ:AAPL) maintains its status as the premium brand.

Apple was in need of some strong catalysts to get the stock back in vogue on Wall Street. It looks like we are starting to see some of these catalysts already. The dividend was just recently increased by 15%. The stock repurchase plan was increased from $10 billion to $60 billion, of which $1.95 billion was used in the first three months of the year. The share repurchase program is expected to be completed by December 2015. These are two positive catalysts that make Apple Inc. (NASDAQ:AAPL) attractive as an investment. I think that Apple’s plan to return money to shareholders has caused the stock to bottom out and reverse course.

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