Apple is bouncing back nicely today after some real panic selling at Friday’s close. We thought there would be some follow through selling creating a nice gift to pick up the stock on the cheap. We were wrong.
The stock, when adjusted for the $59.7 BN of Cash and LT Investments on the balance sheet, which equates to $65 per share, is just too cheap based on earnings estimates and the market is now onto the value story. Our sense is that Apple is a big holding of the fast money crowd and levered set, which explains, in part, the bouts of increased volatility.
We’ve constructed a sensitivity analysis (see table below) of the stock’s cash adjusted P/E ratio based on various earnings estimates and market prices. It illustrates at the current price of $333 the stock trades at 10.3x next year’s estimates. Apple has consistently beat analyst estimates by 10 percent or more in almost every quarter since its reemergence.
The fact the company was able to grow at such a rapid pace over the past few years during what has been, effectively, a depression is remarkable. Imagine the case during steady state growth or a boom?
Apple embodies and has executed on what we believe it will take for the U.S. to emerge and get though its current difficulties: Innovation. We think the President gets it. Listen carefully in his speech tomorrow night. (Click here if the tables are not observable)