Chicago-based Morningstar covers more than 1,700 stocks and only 45 receive five-star rankings. That number has increased, quite a bit, in the past few weeks as the equity market has slid. Morningstar says Apple -- which is down to $315 from a 52-week high of $365 -- is now at an attractive discount price.
During the second quarter, Apple roughly doubled its operating income and boosted sales 83%. Such growth is remarkable, especially considering the company already has a market value of $290 billion. iPhone revenue surged 126%, Mac revenue climbed 32%, iTunes revenue increased 23%, software sales stretched 17% and peripherals sales advanced 23%. iPod sales declined 14%. The iPad, Apple's latest disruptive-technology product, has no year-over-year comparison, but it delivered $2.3 billion of quarterly sales. Put simply, business is booming.
Commentators spouting off about the beleaguered American consumer should take a gander at Apple. Its recent move to sell the iPhone through Verizon (VZ) is providing a nice tailwind as its iPad 2 cannibalizes PC sales from the likes of Hewlett-Packard (HPQ). The one unit receiving little attention, despite outstanding growth, is the Mac business, which is stealing market share at a steady clip. Two other positives: Apple's stock is extremely cheap, on a peer and historical basis, and it carries nearly $66 billion of net cash (cash minus debt). Morningstar's thesis: Apple is a safe, cheap growth stock, likely to outperform.Morningstar has a fair-value target of $475 on the stock, suggesting a return of 52%. Unlike the sell-side, Morningstar doesn't link its targets to a specific time frame. Piper Jaffray (PJC) forecasts a 12-month advance to $554 and Credit Suisse (CS) predicts a rise to $500. Apple receives positive reviews, comprising "buy," "outperform" and "overweight" rankings, from a disproportionate 91% of researchers in coverage. That share renders the stock the fourth-highest-rated in the benchmark S&P 500 Index. With an operating margin, at 29%, in the 99th industry percentile, it's obious why Apple is analysts' favorite tech stock. Morningstar says Apple has a "widening economic moat." Economic moat, or sustainable competitive advantage, is the key to Morningstar's rating system. The researcher favors companies that can keep competitors at bay. Still, Morningstar may be underestimating just how wide Apple's moat is. Although, in theory, other hardware companies could build a better iPhone, so to speak, Apple's customer base is, arguably, the most loyal in the world, and its record of manufacturing seamless, user-friendly and innovative products has garnered goodwill. Research In Motion (RIMM), maker of business go-to BlackBerry, has learned how tough it is to square off with a consumer darling. Its stock is down 39% in a month.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass + 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV