Should You Follow Bill Miller Into This Tech Giant? Apple Inc. (AAPL), Research In Motion Ltd (BBRY)

Bill Miller, legendary value investor and portfolio manager at Legg Mason Capital Management, has taken a big bite out of Apple Inc. (NASDAQ:AAPL) stock. He sees a number of positive catalysts for the company, including an impending major capital allocation move, in addition to a valuation profile that is too good to pass up. Miller is widely known for bravely going where few investors dare, to jump into some of the market’s unloved and unwanted stocks. Should you follow him into Apple, the technology sector’s ugly duckling?

Bill MillerA balance sheet that’s anything but a rotten apple

You’ve probably heard about the issues dogging Apple Inc. (NASDAQ:AAPL) since it briefly became the world’s most valuable company by market capitalization. A mix of fears regarding stiffer competition going forward in conjunction with the potential for lower profit margins has proven to be a toxic combination for what was once the market’s darling stock.

However, Miller believes there’s still a lot to like about Apple and articulated his position on CNBC. First and foremost, he believes the company will make a major strategic shift in its capital allocation policy. Apple Inc. (NASDAQ:AAPL) has $137 billion in cash and marketable securities on its balance sheet, amounting to $146 dollars per share. Miller believes something big is in the offing, likely suggesting Apple will issue a massive special dividend, increase its regular dividend, or announce a large share repurchase. Indeed, Apple’s gigantic cash hoard is an advantage the company holds over virtually every other technology firm.

Apple Inc (AAPL)Competitor Research In Motion Ltd (NASDAQ:BBRY) has stolen a good deal of Apple Inc. (NASDAQ:AAPL)’s thunder over the past few months. After being left for dead by the market, Research In Motion Ltd (NASDAQ:BBRY)’s stock has doubled from under $7 per share to its current level. The company got an additional boost when it revealed that it had received the largest ever single purchase order in its history. Research In Motion Ltd (NASDAQ:BBRY) said one of its established partners had placed an order for one million of the company’s new BlackBerry 10 smartphones, with shipments to being immediately.

That being said, it’s not as if Apple is struggling. The company still booked 45% revenue growth year over year in fiscal 2012.Apple Inc. (NASDAQ:AAPL)’s growth is a clear operating advantage over Research In Motion Ltd (NASDAQ:BBRY). Unfortunately for BlackBerry, its struggles are well-known and it is unclear if the new device will right what is wrong with the company. The company suffered mightily from declining market share, particularly in the enterprise market, which was its bread and butter. In December, Research In Motion Ltd (NASDAQ:BBRY) reported that third-quarter revenue fell a whopping 47% year over year. Diluted net income per share came in at a miniscule $0.02, compared to $0.51 per share in the same quarter the year prior.

A compelling valuation

Miller is a noted value investor, and as a result it shouldn’t be a big surprise that he believes another catalyst for Apple is its extremely cheap valuation. If you back out Apple’s cash on its balance sheet, the stock trades at just 7 times its trailing fiscal 2012 diluted earnings per share.

Miller finds it interesting, as do I, that Google Inc (NASDAQ:GOOG) and Apple are likely to report similar earnings per share this year. Amazingly, Google trades above $800 per share, while Apple currently trades for around $430 per share. This underscores the profound difference in the valuation multiples the market is awarding each stock.

To be sure, Google is a spectacular business with demonstrated growth. The company’s full-year 2012 revenues soared more than 30% year over year, and have more than doubled since 2008. Diluted earnings per share clocked in at $32.31 per share. That means that Google is trading for more than 25 times its trailing earnings.

However, Apple had better revenue growth than Google in 2012, and it also offers investors a dividend, which Google does not. As a result, is it right that Google trades for almost twice the price that Apple does? Miller seems to think not, and I’m inclined to agree. I believe that Google deserves its valuation, and that Apple deserves a comparable one.  At some point, the market’s irrationality will fade and the stock will be rewarded as an innovative marvel.

The article Should You Follow Bill Miller Into This Tech Giant? originally appeared on Fool.com and is written by Robert Ciura.

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