After falling over 9% since earnings, it is finally time to buy Apple stock again.
As I wrote earlier this week, Apple’s (NASDAQ: AAPL) earnings report on Monday disappointed investors enough that they sent shares lower by 8% and another 1% yesterday.
Apple stock soared to $700 per share in 2012. But within just 6 months had already fallen by over 30%.
The chart below shows December 2012 to December 2013.
After bottoming around $385 per share in May 2013, Apple shares jumped to over $460 before crashing back below $400 in June. But since then, Apple stock has been on a tear.
That is, until Monday’s earnings report. Since I covered the details of Apple’s disappointing earnings report earlier this week I won’t get into them here. I encourage you to take a look at what it was about the earnings report that disappointed investors.
Here’s the part that matters for us:
Before the earnings report Apple stock traded at $550 per share. Yesterday, shares closed at $500.
This decline of 9% has pushed Apple’s dividend yield to 2.4% and, in my opinion, didn’t change the investment thesis.
Sure, iPhone sales numbers disappointed investors and that isn’t good. iPhone accounts for more than 60% of Apple’s profit, so it is important that iPhone sales are strong.
But the company reported that it sold 51 million iPhones in three months, an increase of 6.8% over the previous year. While I recognize that analysts were expecting a higher number, I highly doubt these numbers mean the company is worth 9% less.
But now the stock is 9% cheaper.
The P/E Ratio for Apple Stock
If you have followed Apple stock for long you probably hear analysts repeatedly bring up the P/E ratio, or the Price-to-Earnings ratio. This simple ratio of the price of the stock divided by its earnings-per-share is one of the easiest ways to compare stocks to each other.
If a stock has a high P/E ratio it is said to be “expensive.” If a stock has a low P/E ratio then it is said to be “cheap.”
Today, Apple is cheap, which means it’s a great time to buy Apple stock.
With a P/E ratio of 12.39, Apple stock is well below the average of the S&P 500 index of 18.86.
By comparison, Google (NASDAQ: GOOG) trades at a P/E ratio of 32.74.
Apple stock is cheaper than the rest of the market and is cheaper than its peers. Just another reason to buy Apple right now.
Carl Icahn Buys More Apple Stock
Just recently, billionaire investor Carl Icahn announced a large stake in Apple. He took to Twitter to announce his investment. After Apple fell this week Icahn purchased another $500 million worth of shares. This brings his total investment to almost $4 billion.
High-profile investors aren’t always a good thing, and often they can provide more noise than usefulness.
But in the case of Icahn, known as an activist investor, his efforts to get Apple to do something with its huge cash hoard should be a good thing for investors. Whether it is increased share buy-backs – as Icahn is asking for – or increased dividends, I look forward to seeing Apple use its money constructively and applaud Icahn’s efforts.
Apple finally sealed the deal with China Mobile (NYSE: CHL), China’s largest mobile carrier. With 700 million subscribers, a deal between Apple and China Mobile could prove to be huge for Apple.
Apple traded for around $520 per share in late November 2013 when Goldman Sachs released a report saying a China Mobile deal was “imminent.” Just a few weeks later shares had risen by about 10%.
Today, you can buy Apple stock for right around $500. That is $20 less than when the market didn’t even know the deal to reach 700 million potential customers was close.
To me, that looks like a tremendous opportunity.
The Bottom Line: Buy Apple Stock
An overreaction to disappointing earnings, a low P/E ratio, bullish sentiment and a large investment from an activist investor…not to mention the fact that the China Mobile deal seems to have been ignored by the market. Apple stock represents a tremendous opportunity right now.
And that doesn’t even consider the possibility of new products. We’ve been hearing of new products for years but top analysts are finally expecting both an Apple TV and a wearable tech device to be released in 2014.
With the share price depressed, now is the time to buy Apple stock again.
The One Stock to Own in 2014 — The Year Mobile Takes Over
On Dec. 31, something incredible happened. For the first time in history, the majority of Internet traffic originated from NOT from PCs or desktops — but from mobile devices including smartphones and tablets. We’re never going back. Mobile is taking over. And even though the biggest player in mobile, Apple, is selling over 200 million iPhones this year alone… here at Wyatt Research, we’re recommending the one company no one is taking about. The one reaping massive profits each time a new Apple or Samsung smartphone is activated. In fact, as mobile data usage explodes in the year ahead, its stock is set to soar! Shares are already on the move. So, before this stock moves any higher, read our latest report for all the details: Click here for the full story.