Apple is now a value stock

The company famous for premium prices is now surprisingly cheap

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By Brett Arends

Bloomberg

No, Tim Cook does not have the pizazz of his predecessor. Time was, Steve Jobs would stand up at an Apple /quotes/zigman/68270/quotes/nls/aapl AAPL +0.58% conference and the stock would zoom.

This time around, it barely flickered, despite several pretty hefty announcements — the upgraded iPad, iPad Mini, and the free software.
Wall Street is a little bored with Apple these days — but that’s good news for investors, not bad news. When it comes to money, boring is good. And Apple looks pretty good right now.
Not because it’s sexy, dynamic, or reinventing the cheese grater, but because it’s pretty solid, and pretty cheap.
If you want to understand just how cheap Apple is, try imagining that you are the richest person in the world, and the richest person who ever lived. You have a gigantic pile of gold and you don’t know what to do with it.
Take a look at Apple.
The stock trades at $520. There are 924 million shares in existence, all told. So to buy up all the stock of the company at today’s price would cost you $482 billion.
On top of that, Apple has $77 billion in liabilities — short term and long-term debt, accounts payable and so forth. So all in all, in order to buy Apple, Inc. outright and become its sole owner, at today’s stock price you’d have to fork over $559 billion. (This is assuming, for the moment, that your bid didn’t move the stock price, which of course it would).
What would you get for your $559 billion?
The first thing you’d get would be a lovely pile of cash, Treasury bills and other marketable securities. In total, according to the company’s public filings, those would add up to $172 billion. Indeed.
So in fact you wouldn’t really be out of pocket by $559 billion. After liquidating those investments you’d be out of pocket by only $397 billion, net.
Yes, there would be extra taxes to pay on some of that money, as it is being held offshore, but there are ways and means of at least minimizing some of the damage.
So what would you get for your $397 billion?

Click to Play

Apple unveils new iPad Air

Apple introduces two additional tablets to its product line: the iPad Air and new iPad mini.

You’d get a company that generated $50 billion in operating cash flow last year, and which is forecast to generate about the same this year and next. Granted, these things are always subject to change. Apple faces price competition in its markets. But it also enjoys a brand name second to none, and secular growth in many parts of the world, where — hard to believe — people do not already own iPhones in great numbers.
So let’s just imagine that price competition completely offsets any growth, and Apple’s cash flow merely remains stagnant at $50 billion a year.
What that means is that you have paid about $400 billion (net of all that cash) for a business which puts $50 billion a year into your back pocket. In about eight years you’d have all your money back, and everything after that would be pure gravy.
You have to like those odds.

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Even if cash flow actually declines per share, this may change the math but not the overall direction. Unless there is a total collapse in cash flow, you are looking at a stock that is going to give you your money back and then some.
In an era when bank accounts pay 1%, this isn’t unappealing.
Apple’s real strength in the tech business is its competence. Its products simply work better than many of its rivals’. There are lots of Apple fans out there who won’t change and see no reason to do so. They are impressively loyal.
I have no view on the iPad or the iPhone or any of these other gadgets. I prefer old technology to the new. But Apple is a value stock. Boring can be beautiful.

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