Apple’s Deep Value Makes It Worthy Of Dividend Investor Dollars

01Apr13

Forbes Dividend Investor subscribers received this hotline on March 13:

Apple has certainly had a storied history as a cult brand, a company that went to the brink of extinction, and a monster stock once Steve Jobs returned to the company he co-founded and executed a turnaround for the ages.
A decade of new product hits including the iPod, iPhone and iPad revolutionized music listening, cell phones and mobile computing and fueled a spectacular run of nearly 10,000% in the stock from less than $7 split-adjusted in 2003 to its high last September of $705.

Over the past six months, however, the ubiquitous worship of Apple seems to have turned into universal disdain as the stock has tumbled 40% from its peak. To be sure, the chart is a portrait of ugliness, but with Apple trading around $430, the stock looks dirt cheap at present valuations compared to historical price multiples of sales, earnings and book value. Its price-sales ratio is 27% below its 3.5 average since 2008, and the discount to its five-year average price-to-book value ratio is 31%. Its present P/E is 49% less than average. Those are fat discounts for a company expected to grow sales by 16% this year.

In addition to looking especially lean on vauations, the 2.5% dividend yield adds a decent income kicker. Plus, with the biggest pile of corporate cash known to man, Apple can afford to hike its $2.65 quarterly payout in the future as it makes the transition from a growth rocket into a cash cow. Apple paid regular quarterly dividends from May 1987 until November 1995 when it eliminated the dividend to conserve cash.

The death of Steve Jobs in October 2011 and the rise of more formidable competition from Samsung and other Google Android phones and tablets strongly suggest that Apple’s future may not resemble its past several years. Nonetheless, with no debt and $56.7 billion in cash from operations over the past 12 months, it’s still a money-printing machine.
Apple’s current fiscal year ends September 30, and analysts expect it to earn $44.32 per share, just a few cents per share above teh $44.15 it earned last year. Wall Street expects sales to be up 16.4% to $182.2 billion. Apple reports results of the January-March quarter on April 23.

Dealing with a stock that has fallen so far can be like attempting to handle a wounded animal. Take care not to get bitten by Apple. At some point, the selling will be exhausted. Extremely oversold readings in stochastics and money flow two weeks ago make a credible case that perhaps the descent has been halted and a challenge of $450 is coming. Use a stop-loss a little tighter than usual, maybe 3%-4%, because if the selling resumes, a trip to $400 may not be far behind. At that point, however, the greater likelihood would be a massive bounce instead of further cratering and you would hate to sell at the bottom.

Source: Forbes – John Dobosz (Forbes Staff) 3/15/2013 @ 5:49PM

Learn more about Ron Sloy.

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