Crista Huff

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.

* * * *

Apple Stock Chart

Apple Stock Chart by YCharts

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.

* * * *

Crista Huff

Crista Huff is a retired stockbroker from a NYSE member investment firm. She writes about market-timing at Goodfellow LLC and is active politically.
TOWNHALL DAILY: Be the first to read Crista Huff's column. Sign up today and receive daily lineup delivered each morning to your inbox. Release of Liability: Through use of this website viewing or using you agree to hold and its employees harmless and to completely release and its employees from any and all liability due to any and all loss (monetary or otherwise), damage (monetary or otherwise), or injury (monetary or otherwise) that you may incur. Goodfellow LLC and its employees are not paid by third parties to promote nor disparage any investment. Recommendations are based on hypothetical situations of what we would do, not advice on what you should do. Neither Goodfellow LLC nor its employees are licensed investment advisors, tax advisors, nor attorneys. Consult with a licensed investment advisor and a tax advisor to determine the suitability of any investment.