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Apple (AAPL): Shares Cheap, Buying Opportunity For Long-Term Investors

 December 18, 2012 03:25 PM
 


(By Mani) Shares of Apple, Inc. (NASDAQ: AAPL) are witnessing significant volatility since closing above the $700 mark on Sept. 18, driven by multiple factors including Fiscal Cliff, locking in gains; China concerns; new product launches and long-term gross margin expectations. Long-term investors should consider the dip as a good buying opportunity.

However, the recent record sales in China should help ease some investor concerns over China, which saw the launch of iPhone 5 on Dec.14. Apple announced that it sold more than two million iPhone 5's in China during its first three day weekend. This marks a record setting sales weekend in China. Meanwhile, Apple remain on track to launch in 100 countries by the end of the year.

[Related -Sobering Quarter and Guidance for Long-Time Apple Bull]

"In our view, this is a positive as the company continues to outpace the previous iPhone 4S launch setting up for a positive Dec-qtr," RBC Capital Markets analyst Amit Daryanani said in a client note.

With a smaller smartphone selling base in China, the record sales are a positive for the company. Notably, this growth excludes China Mobile, which is the largest mobile operator in the world with about 700 million subscribers and 75.6 million 3G customers.

"We previously estimated that the addition of China Mobile could add ~$3 to Apple's EPS or ~$45 to its stock price with sales of 10-16M units in its first 12 months of availability," Daryanani said.

Coming back to the share price volatility, Apple shares have become cheap given its future potential product launches and emerging markets exposure. There are potential advancements including the incorporation of biometrics (fingerprint, optical sensors, facial recognition), a material leap in voice recognition (Siri), new consumer cloud services, or even a step towards augmented reality peripherals.

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Investors should understand that Apple's revenue growth is bound to slow given its size, and margins likely are peaking with the iPhone two-thirds of profit. The stock can continue to rise though it is more likely to be through earnings growth than P/E expansion.

Shares are currently trading at $520 levels – a good entry point for value investors. Shares are trading at 10.5 times Wall Street's 2013 consensus earnings estimate, implying a valuation of 7.6 times an ex-cash basis. This is also a significant discount to the S&P 500 which is currently trading at about 12 times earnings.

Long-term, Apple could sustain double digit revenue and EPS growth on the back of iPhone, iPad and the possible launch of an iTV in 2013.

"While we expect the volatility to continue in the near-term, we believe the press release along with a ~30% decline in the stock since its all-time highs creates a buying opportunity for long-term investors," Daryanani added.

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(1)
 
12/18/2012 8:10:40 PM
apple epoch time is over by Jeremy Smith
without Steve Jobs,Apple time is over!
Rating: (3) (1)
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