Apple Computer (NASDAQ: AAPL): Is This Stock Too Cheap to Own?
Jan. 25, 2013
While Starbucks is intact, shares of Apple Computer continue to tumble today. Its PE multiple is also down, making one of the cheapest stocks to own among tech companies. Investors can not simply ignore this stock as it is still making massive revenues and its balance sheet is rock solid.
There are several catalysts that the stock starts to rally. First, the stock is too cheap. Apple continues to sell iPhones as well as Mac products across the globe, especially in Asia where middle income consumers are growing. Trading at 10 times earnings is just too cheap. Second, the company may introduce a new product this year. The rumor is always circulating as iTV is showing up in the market soon. If its innovative product comes to market, the stock will gain popularity and its multiple starts to rise. Third, Apple may increase dividend payout this summer. With $137 billion cash on hand after the first quarter, that huge cash position can have enough room to increase the amount of dividend to investors. Currently, it yields 2.41% thanks to the decline of the stock price in the past months and this yield can be the cushion for the stock. If the price remains the same and the yield becomes double due to a dividend increase, downside will be very limited and the risk/reward will become very favorable to investors.
However, a dividend hike is not the way that Apple should attract investors. Investors are looking for more innovative products that only Apple can innovate and deliver. That is the way that Apple can satisfy investors in the near term. This company is not broken yet while the stock is broken. I would be a buyer here but greater patience is required.
Akira Kondo is long AAPL.