Wednesday, January 9, 2008

Apple Part II

I’ve officially put my money where my mouth is by purchasing Apple, Inc (AAPL) this morning at $170/share. I recommended them earlier at $200/share, and I stand by my argument. Granted, I had no idea it would make an afternoon run-up close to $180/share, but that is not the point. The stock may go lower, but here are a few reasons why I felt it was a good entry point:

Apple flat out makes money, and (in my opinion) has some of the most innovative and creative minds in the world leading the company. I don’t know how much the anticipated decrease in consumer spending will affect sales; however, a quick glance at the balance sheet and key valuation metrics had me sold.

They have roughly $15 billion cash on hand, a PEG ratio of 1.51, a trailing P/E ratio of 46 and a forward P/E ratio of 28. When the market stabilizes, a company like Apple will move towards it’s near perfectly estimated future value and trade at that value today. The market has priced them with a trailing P/E near 50 in the past. So, when I see the current valuation off in my estimation, I buy. I think Apple is worth roughly $215 a share in the short-term. However, they MUST continue to exceed Wall Street’s expectations.

The fears of a recession may contribute to an uncharacteristically high beta with technology companies like Apple, Google, etc—meaning: The stock may go lower before it moves higher, but I don’t care—I may hold them forever.

I currently own shares of Apple, Inc.

10 comments:

Andrew R said...

Now it's time to put your purchases where your investments are! Time to buy a mac! Pete and I did and we'll never go back! Hahaha. But seriously, they are creating a way of life that is hard to compete with. I know I love their products!

peter f said...

Oh yes, I bought my mac and LOVE it. I also want to confess I have a new g/f in my life......my iPhone! Pretty much the best thing ever so you should get on that too. Figure it out Reese! I love Mac and they are traveling down the same road Starbucks did. Everyone will want a Mac because everyone else has one (very strong branding)

P.S. I am still waiting on my patch Kat

Brian Reese said...

I am seriously thinking about a mac, but still a little biased towards a PC.

Everytime I go into an Apple store I find myself messing with the iPhone. I just don't think I need it yet.

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