I think that is really the key… Based on their 2011FY earnings, they could easily sustain a $20/share dividend (based on free cash flow in excess of capital expenditures). That would represent a dividend yield over 5% based on the current price, a yield over 4% on a share price of $500 (a rise of roughly 1/3 from the current price).

Unfortunately, it is hard to value $$$ sitting in corporate lock-boxes. Apple has not offered any hint of how it plans to use that money (investing in supply chain wouldn’t use more than a fraction of their ongoing earnings). If you assume the cash hoard will be wasted, and that future cash flow will be wasted along with it, then you can’t assign much of a value to the company.

1) You’re acting like a lower P/E is a bad thing – it’s not! Is this P/E current or future – or was it stated and I missed it in the article? Lower P/E’s are generally associated with a higher degree of risk, which is clearly not the case here. That’s when we look at the PEG – sitting now at .17. Well below the 1.00 benchmark for a fairly valued company. So, look beyond the P/E – the TTM for this multiple is really good! They’re just putting capital elsewhere. Low P/E means buy, Buy, BUY! Both the P/E and the PEG suggest AAPL is undervalued, which projects well for your portfolio! At the hint of a dividend, this price will soar.

2) The article says when the economy turns south – when? Many economists say we’re still in the fade of the double dip recession. And, guess what… AAPL is still making more money than they know what to do with!

3) AAPL will not run out of buyers – how many babies are born every second? They’re good. Innovative companies like AAPL will always win over the next generation of buyers. We can already see it – RIP RIM.

http://statspotting.com/2011/12/felix-sa lmons-apple-stock-analysis-factually-wro ng/

Still I agree that by many measures the stock is undervalued even when compared to that sector.

The Apple stock will crash down faster than it exploded up after the iPhone. You will be lucky if the Apple stock stays above iPod level, it’ll be at a valuation of around $100 Billion maybe.

Trouble is of course that the analogy doesn’t work, and was never going to work regardless of who ended up with the biggest slice of market share. What matters is the profit share, not market share (and keep in mind in its glory days Microsoft was winning on profit share).

Eventually investors will figure it out — due to Apple’s pile of cash becoming too big to ignore, most likely.

This, I think, demonstrates a lot of the problem right here. There is an established narrative about Apple: they sell luxury goods at premium prices for fashion-conscious idiots. This narrative was established during the Scully/Spindler dark ages, and multiple generations of lazy, incompetent “industry journalists” (but I repeat myself) have been parroting it ever since, backed by an amen chorus of random goobers on blogs. Research is hard, so people (including not just retail investors but alleged professional fun managers) make decisions based on the things that “everybody knows.”

Of course, it’s complete nonsense: every major product line that Apple has introduced since the first iPod has been minimally cost-competitive with its nearest competitors, but in many cases has been the clear cost leader! (Often because Apple used part of their cash pile to lock up the supply chain– even Samsung, which owns its own fabs and factories, has not been able to significantly undercut the ipad on price.) But still the hordes of zombies intone: “Apple is expensive!”

Established narratives are hard to fight. Just ask Al Gore, inventor of the internet.

One, the iPod was intro’d over 10 years ago. The iPhone almost 6 years later, and the iPad 3 years after that. Game-changing devices do not get introduced every year. The life cycle can be short or long depending upon the device. A fashion phone like the RAZR has a short life. BB rode the smartphone wave, but had no stickiness. Your example of iOS devices have stickiness because of iTunes and the app and media content moat. Is there a fundamental difference between RIM and Apple? If you can’t see it, you don’t really understand either company.

So 40% Y/Y growth is not a growth story. Please do point us to the real growth stories out there — they must have some amazing growth rates to qualify in your book.

Law of large numbers? Apple has a 5% share of the world PC market. It can triple its computer income by merely getting up to 15% — hardly unattainable. How about the TV market? Apple currently has 0% of that. Just entering it and getting a measly 5% would mean more huge growth. How about new markets that like the pre-iPad tablet market don’t currently exist?

Right wrote, “Where is the long-term growth going to come from? Are they going to just continually innovate new platforms at ever-higher price points forever?” Sure, why not, who else has shown any capability to innovate at all? And, what are you talking about “ever-higher price points”?

Right wrote, “Or will their massive iPhone and iPad profits be hampered by disruptive competition from Android and Windows phones and Amazon-style tablets (not to mention market saturation)?” Anything’s possible, but only two Android mfrs are making healthy profits, Samsung and HTC, and both appear to be losing IP infringement and trade dress lawsuits. The other Android mfrs are losing money, Motorola, Sony Ericsson, and LG.

Right wrote, “Today is the best of all possible worlds for Apple and it makes no sense to price in an indefinite continuation of current conditions.” No, a year ago, people were saying the same thing, and 2 years ago, and 5 years ago.

Growth may eventually slow, but pricing it for something that may happen far in the future seems nonsensical.

The counterintuitive reason that Apple does well in the bad economy is that the economy isn’t equally bad for everyone. Apple buyers, with their higher incomes and education levels tend to be the least effected by the downturns. People barely scraping by, who were the ones buying the cheap, grey econo-box computers and disposable netbooks were the ones who lost their jobs. Also businesses postponing PC upgrade cycles are disproportionally hurting Apple’s competitors, leaving Apple, with it’s tiny business market share unscathed.

Also, time and again investors have assumed that the last Apple innovation will be their last — be that the iPod, the iPhone or now the iPad. Apple keeps thinking differently on that subject.

Sure nothing is guaranteed — certainly not Apple’s future success. But who is going to do better than Apple? Someone may, but it sure seems hard to see among Apple’s rival’s. Amazon, with its ridiculously high P/E? Apple’s retail operation, brick and mortar as well as virtual rivals Amazon’s in profitability — but what’s most of Amazon is just a small fraction of Apple. And Amazon’s profitability is not going to go up thanks to selling a ton of Kindle Fires at a loss. Who is going to best Apple?