Wild Ride

Apple (AAPL) is down "only" 6% for the year, better than the Dow (-12%) and worse than the NASDAQ (-4.8%). However, the January 1st-to-August 25th percentage change doesn't capture what a wild ride it's been. From the intraday high of $134.54 on April 28th Apple's price has fallen nearly 23%. Will the downward trend continue or reverse?

Most stock analysts view Apple's current price point as a buying opportunity [bold added].

The market’s recent moves have made Apple even more attractive on a valuation basis, even with today’s recovery. At 11 times forward earnings [blogger's note: price divided by next year's estimated earnings], Apple is well below both its 12.6 times historical average and the Standard & Poor’s 500, at 14.7 times. Moreover, as [Wells Fargo analyst Maynard] Um notes, the shares change hands at 7.9 times his 2016 free cash flow estimate, while Apple has historically bottomed between eight and nine times free cash flow.

This comes as the shares’ yield is approaching 2%, and the company’s projected long-term earnings growth is 16.5%. [Blogger's note: Apple's "PEG" ratio--in this case 12 divided by 16.5--is less than 1.0, which is normally considered a strong buy signal.]

Investors are right to be concerned about China’s impact on Apple, as the nation accounted for more than a quarter of the company’s fiscal third-quarter sales. However, investors likely took the connection between Apple and China too far in recent days.

The principle of diversification prevents us from acquiring more AAPL, but we would be a buyer if it did not already comprise a significant part of our portfolio.