Apple shares ‘absurdly cheap’

NOT everyone is worried about Apple’s future fortunes, or its direction under CEO Tim Cook.

Local Apple bull Paul Theron, founder and CEO of Johannesburgbased asset management firm Vestact, said the company’s prospects remained solid, and that the share price, at about $120 (R1 615), was “absurdly cheap”.

Apple, which is trading below its May 18 2015 all-time high of $134.54 a share, has a historic price-toearnings ratio of 14.

“That’s lower than Toyota, lower than IBM. It’s lower than banged-up banks like Citibank and Wells Fargo. That’s madness,” Theron said.

The smartphone market was not only not mature, it was still in its infancy, he said.

This would play strongly in Apple’s favour.

“Apple dominates the top end of the world’s most important product market — smartphones. The potential market is every person in the world. People who don’t have one want one. People who have one want a new one.”

What Apple needed to do, Theron said, was to simply “go on doing what it does best”, namely “designing, manufacturing and distributing smartphones”.

He predicted the next iPhone — possibly to be called the iPhone 7s or iPhone 8 — could sell over 300 million units a year. (In its fiscal fourth quarter — to September 24 last year — Apple sold 34.5 million iPhones.)

BMI-TechKnowledge director of research Brian Neilson was less bullish, and said Apple’s reliance on mature markets was a handicap.

“Apple is far less successful in emerging markets, and in some cases almost irrelevant, especially in the emerging low-cost smartphone market, the ‘next billion’ if you like,” he said.

Google’s Android dominates in emerging markets. In the third quarter of 2016, Android had captured 87% of the global market, according to International Data Corp. Apple’s iOS had just 12.5%. However, the iPhone continued to mop up the bulk of smartphone industry profits in 2016, according to various research houses.

Vestact portfolio manager Sasha Naryshkine is also strongly bullish on Apple.

He said its valuation was even cheaper if one stripped out the company’s cash balance of $240billion. “Even if you add the taxable amount — for cash repatriated to the US — you could get a huge reinvestment or greater cash distributions to shareholders, increasing the attractiveness of the stock,” Naryshkine said.

He also defended Cook, saying that although he “may be a corporate type” he “may be exactly what the business needs right now. The bottom line is that Apple makes products and offers services that Mr and Mrs Consumer love. If that changes, watch out.”