I’ve been trading Apple stock for the better part of the past decade and it’s been a long time since I’ve been this compelled to buy Apple stock (AAPL). The fundamentals are just so overwhelming that I simply can’t ignore it anymore. Here are my thoughts:
Profit to Earnings Ratio (P/E):
Apple is currently trading at a P/E of 15.87, which is the lowest I can ever remember seeing it. The P/E ratio is calculated by taking the stock price ($332.86) and dividing that buy the stock’s earnings per share ($20.98). So, if you take $332.86 / $20.98 you come up with 15.87.
Why is this important? Well, people often get hung up on the stock price itself. Apple is trading at $332.86 and that is the only thing most people focus on when looking at stocks. When a stock’s share price gets this high people often think “That’s an expensive stock”. The reality is that it’s the same exact price as a $33 stock with $2 per share earnings.
Apple traditionally trades in the low – mid 20’s P/E range. If you take this into account, the stock would be trading at $472.05 when using a P/E of 22.5 or $524.50 at a P/E of 25. There is an amazing article at Seeking Alpha about all this. Here is another article at Fortune about this.
I have no reason to suspect that Apple’s EPS will go down in the near future. In fact, they continue to gain market share and have increased earnings year over year for as long as I can remember. Also, don’t forget Apple’s sick cash position; over $85 of each share is CASH.
To me this is reason enough to buy the stock. In fact, I would say this is the single biggest reason I’m buying the stock, but there are other reasons…..
The Chart Is Compelling
I think people who trade based on charts alone are crazy, but they can be good supporting data in the correct cases. Take a look at Apple’s chart below and you’ll see that it’s been trading in the narrow range of 320 – 360 for the better part of five months. With the stock hovering around 330 right now, this is a quadrupedal bottom at this price, something chart analyst would buy on alone. So, I feel VERY safe picking the stock up at these levels.
Big Announcement Coming?
I was reading MacRumors today (something I do several times per week) and this post caught my eye. It looks like they are planning some crazy announcement this weekend that they are going though great lengths to protect the nature of. Now, this could be totally nothing at all, but it could be something crazy big too. Maybe some revolutionary new product none of us see coming? This alone wouldn’t be reason to buy the stock, but it was the reason I started looking into it again. Look at what Apple is doing to prepare for the event this weekend:
– There’s an overnight shift planned for around 10-15 individuals at each Apple Store to work from late Saturday all the way through mid-Sunday.
– During the overnight shift, it’s going to be required that employees lock cell phones in the main office. They will also have to sign an NDA with Apple.
– There are a wide variety of roles, we’re told, for the overnight shift. This includes all visuals staff, a manager, a business team member, a few Genius team members, one back-of-house employee, and a few generic Apple specialists.
– Apple stores have apparently already received hardware to install, and are expecting more hardware to come on Friday or Saturday. All materials that Apple stores have received have been instructed to be under lock and key until after close on Saturday night.
– Apple employees will be putting up black curtains at all stores so that people walking outside cannot see inside.
– Employees have had to download gigabytes of data from Apple corporate labeled, “training” in a password-protected zipped folder that won’t accessible to managers or anyone else until Saturday afternoon.
– Lastly, all Apple retail stores have mandatory meetings on Sunday, May 22nd. Most meeting are scheduled for the morning, but there are evening meetings as well.
Over the next several days I’m going to be picking up Apple Leap options and buying several shares of the stock in a long position. My first trade was to buy the Apple Jan 2012 320 Call options at 41.50. My next trade will be to pickup 100 shares of the stock with a limit price of 332.50. After that I will pick some more options up. If I don’t have these orders filled by Friday I will just put in market orders to build my position before this announcement. If the announcement is nothing special, then I will continue to pick up shares and options in Apple slowly. I like spreading my trades out to prevent short-term variance. If the announcement is big then I will already be a step ahead. I will then evaluate how to buy more stock after the announcement.
*** I’ve watched CNBC enough to know that I have to say I’m long in AAPL and that my opinions within are by no means a recommendation to purchase stock or options in Apple Computer.