my take on Apple (AAPL)

In a comment on yesterday’s post, my friend Bruce asked for my take on AAPL. That’s my subject today.

The stock looks cheap to me.  Investors have had two big worries, I think.  One has been lack of recent earnings growth.  The other is the perception that the post-Jobs management of AAPL is completely at sea, cowed by the memory of Jobs and therefore unable to make decisions– as well as completely uninterested in whether the stock goes up or down.

However,

–growth appears to be resuming.  Yes, modest growth, but Wall Street has understood for years that the heady days of the last decade are gone forever.

–AAPL has a stellar brand name and many rabid fans.  New products may re-energize them.

–the recent announcement of a 7-for-1 split offers the hope that management is more the simply caretaker of the Steve Jobs museum.

–in addition, conditions are right for investors to look at AAPL again.  I think 2014 is going to be a sideways year from here for the US stock market.  So a big, low-multiple, cash generative company where earnings growth is resuming and where management practices may be taking a turn for the better has a great chance to be an outperformer.  A 2.3% dividend yield doesn’t hurt, either.

To me, AAPL feels like the MSFT story, only in an earlier chapter.  MSFT has a stronger business.  But Tim Cook arguably has greater freedom to act, since he’s dealing only with the legend of Steve Jobs and not the physical presence of Steve Ballmer.  (Also, to give him credit, Cook has already fixed one of SJ’s mistaken pronouncements–that 10″ is the only tablet size anyone will/should want.  He appears to be in the process of fixing another, similar one–that the original iPhone screen size is the only choice anyone will want/need.)

Personally, I prefer MSFT.  But that may be because AAPL has historically been so uncommunicative that it’s hard to figure out what’s going on inside management’s heads.  In the strange way investors think, my attitude is arguably an investment plus for AAPL.  Better communication from AAPL would come as a positive surprise to Wall Street–and by itself result in a higher stock price.

 

 

 

 

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