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Apple: 3 Reasons To Expect A Bottom

 April 18, 2013 10:35 AM

by Ian Wyatt, editor Top Stock Insights

I want to go on the record that I think this is a bottom for Apple (AAPL) and that now is perhaps the best time in recent years to buy the stock.

There are three reasons that Apple stock is attractive today -- the firm's upcoming quarterly earnings, new products on the horizon, and the company's pro-shareholder philosophy. Plus, the shares are cheap.

Reason #1: Earnings

On April 23, Apple will report earnings for the fiscal second quarter. I believe expectations are low for Apple. Four out of the last six times that Apple has reported earnings, the company's performance has fallen short of analyst expectations, and the stock has been punished.  

[Related -Fusion-IO, Inc. (FIO): Can Fusion-IO Q2 Results Cheer Street?]

This past performance means that many investors expect Apple will not perform well when Q2 earnings are reported -- setting a low bar -- and potentially making it easy for Apple to exceed those expectations.

Reason #2: New Products

While Apple doesn't pre-announce product launches, there is reason to believe that a new version of the iPhone is coming this summer and a lower-priced iPhone for international markets may out soon too. Additionally, there is speculation about an iWatch and the long awaited iTV in 2013.

While the launch of the iPhone 5 and iPad mini were disappointing to many observers, these new products could breathe some life and excitement back into Apple, bringing investors back into the stock in a big way.

[Related -Google Inc (GOOG): Why Nest Labs Deal Is A Wakeup Call For Apple Inc.?]

Reason #3: Pro-Shareholder

Earlier this year, hedge fund manager David Einhorn proposed a new class of Apple shares in an effort to get the company to return its cash hoard to shareholders.

Apple CEO Tim Cook didn't want to be told how to run his company by a NYC hedge fund manager.  But now that the dust has settled, Cook may announce "pro-shareholder" steps including a larger share buyback or an increase in the dividend. These actions could send the shares higher.

Finally, the best reason to buy Apple is that with the stock trading at 6.4-times expected 2013 earnings, the shares are cheap. It is one of the least expensive stocks in the S&P 500 index on a price-to-earnings basis.

The market is pricing Apple as though it's one of the least desirable companies one could own. My experience as an Apple customer makes me believe that the low valuation isn't justified.

If you don't own Apple, buying the stock before April 23 when earnings are released could be a great investment. Many investors were willing to pony up $700 for the stock seven months ago ... now, nobody wants it.

This doesn't make much sense. My personal view is that Apple shares could return to $700 within the next two or three years, making the risk-reward opportunity extremely attractive right now.



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