How To Elegantly Diss Apple Bashers: A Tutorial

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Now that Apple’s (AAPL) shareholder meeting has ended with no grand plan to save the stock price, investors may need some assistance finding reasons to hang on to their shares. Helpfully, the financial page of The New Yorker magazine this week offers several. A piece by James Surowiecki quite elegantly disses Apple bashers, offering reminders that the investment community has underestimated this company before. We at YCharts thought we’d offer an illustrated version.

Apple shares have dropped 34% over the past six months following evidence that competitors like Samsung and others running Google (GOOG) Android systems on smartphones are gaining ground. Mainly, they’ve put smartphones on the market with most of the bells and whistles of iPhones at lower prices. Investors worry that with a product portfolio limited to the high-end, Apple will not be able to develop competitive products now that competitor technology has caught up.

Surowiecki’s column points out a couple of other times when Apple’s innovation talent was called into question. Its Apple stores, which have gone on to become the most profitable retail outlets in the country, were openly mocked as a bad idea when they first opened in 2001. Likewise, he notes, iPods were thought too expensive and uninventive to fly. Investors who ignored the criticism and bought shares during back then anyway have seen total returns on their investment rise more than 5,600%. Yes, that’s even with the recent trouble.

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AAPL Chart

Surowiecki also notes Apple’s big profit margins and a cash pile that exceeds the market cap of most S&P 500 companies. It’s a grand stash that can be used for both innovation and pacifying shareholders during slow times, even though the company chose not to let go of much of it this particular quarter. Apple’s dividend yield now is 2.4%. Its cash dividend payout ratio its payout ratio is 0.06. In other words, Apple is paying only a tiny portion of cash or earnings now. There’s obviously room for payouts to grow.

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AAPL Payout Ratio TTM Chart

Then there’s the cheap price of an Apple share. Apple’s PE ratio hovers just above 10 now, a startling drop from valuations just six months ago. On a forward earnings basis, shares of Apple, the biggest player in the fast-growing markets of smartphones and tablets, is trading below 9. That makes its shares cheaper than those of Cisco (CSCO), maker of network computing equipment); and Microsoft (MSFT), maker of not-very-popular windows phones and tablets), for example.

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AAPL Forward PE Ratio Chart

Here, we would like to make a point that Surowiecki doesn’t: that Apple remains one of the most recommended shares on the planet. More than 50 analysts follow Apple, and some 40 still have buy or outperform ratings on the shares. Goldman Sach’s recent survey showed that Apple is the third-most popular stock in hedge fund portfolios, and it still made the list of popular fund buys last quarter. The critics are louder now, but there’s still a lot of faith in Apple.

Dee Gill, a senior contributing editor at YCharts, is a former foreign correspondent for AP-Dow Jones News in London, where she covered the U.K. equities market and economic indicators. She has written for The New York Times, The Wall Street Journal, The Economist and Time magazine. She can be reached at editor@ycharts.com.


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