At $585.56 per share, is Apple Inc. still a buy?
Under many scenarios, yes. Under my criteria, no. Am I going to buy it anyway? Yes. Let me explain.
Apple is a great, growing company with no long-term debt and TONS of cash -- more cash than most countries have in their annual budgets.
Wall Street consensus earnings estimates show 2012 earnings per share (EPS) coming in at $42.97. That means that the price earnings ratio is 13.6. And Apple's projected earnings growth rate this year is 55%.
Re-cap: 55% 2012 EPS growth and a PE of 13.6. From a fundamental point of view, this screams undervalued stock.
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The chart: Apple stock has made a 38% price move since it broke out in January. It's over-extended, and a price correction is inevitable. Stocks which have had big price moves can have big price corrections when an overall stock market correction comes upon us. Most stocks fall a decent amount at that time, and bargain hunters go shopping.
The best stocks to buy after a stock market correction are (1) stocks* which only fell a tiny percent compared to the market as a whole, and (2) stocks* which are correcting from a big run-up. (* And always, these stocks must have excellent fundamentals.) The former are stocks with really strong charts and the latter are glamour stocks which tons of people want to buy when they go on sale.
I'm in the category of people who want to buy Apple after the next stock market drop. But for me, it's a little more sentimental than fundamental, because here's my problem: Apple's EPS growth in 2013 and 2014 is only projected to be 11% per year. And I don't recommend stocks unless they have a combined projected EPS growth rate plus dividend yield equalling 15% per year.
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Hussman's Open Letter to the Fed; The Problem with Bubbles; Textbook Pre-Crash Bubble; Reflections on Not Chasing Bubbles; Integrity vs. Respect | Mike Shedlock