It's Not Too Late to Buy Apple -- But You've Got to Hurry Up

 

BALTIMORE (Stockpickr) -- It's been a banner year for Apple (AAPL) . In the trailing 12 months, the world's biggest tech name has rallied more than 42%, taking on an additional $200 billion in market value over that stretch.

Just for comparison, that's more than Intel's (INTC) entire market capitalization today.

On the heels of a major product announcement on Tuesday, plenty of Apple investors are understandably wondering if now's the time to take gains. Can Apple sustain a move higher? The short answer is yes.

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It may be hard to believe, but Apple is still cheap right now, and there's still time to buy -- for now.

For the last year, Apple has been the biggest bargain stock hidden in plain sight. Ironically, it's a stock that became so big that it sported the type of deep-value price tag that you normally see in small-cap stocks that don't have enough analyst coverage. Despite the fact that Apple is probably the most closely covered stock on Wall Street -- or may be because of it -- very few investors thought that this stock was mispriced.

Before we get any further, I want to make one thing clear: This isn't some "unbiased" article about Apple. I'm no journalist. In my day job, I'm an investment professional. I pick stocks, and I've recently built a position in Apple. So yes, I'm talking my book right now. But that doesn't make what I'm about to say any less true.

The Apple Event

On Tuesday, Apple unveiled new products in three categories: the iPhone 6 and iPhone 6 Plus, the Apple Watch and Apple Pay.

The new iPhones were probably the least surprising announcement. They followed Apple's typical upgrade roadmap of providing new form factor and features every two years. But what's notable is that Apple is making a big bet on the new handsets. According to The Wall Street Journal, Apple is ordering between 70 million and 80 million of the new devices from its manufacturers by the end of the year.

That's the biggest-forecast handset need from Apple to date, as much as 60% higher than last year's order for the iPhone 5S and 5C. The phone went on sale this morning, a little after midnight Pacific Time. I won't speculate on sales numbers here, but Apple isn't a firm that's known for carrying excess inventory on its balance sheet.

The Apple Watch is the first new product category that Apple has introduced in four years, making its success all the more important. And the Watch, which goes on sale early next year for $349, hasn't come without criticism. Here's what some people have been saying:

"There are already two products similar to this on the market. I think Apple is making a mistake by trying to get into this market."

"Here's an idea Apple -- rather than enter the world of gimmicks and toys, why don't you spend a little more time sorting out your pathetically expensive and crap server line up?"

"It wont sell, and be killed off in a short time ... and it's not really functional."

Oh wait. Those were comments on a MacRumors forum about the original iPod when Steve Jobs introduced it in October of 2001. In so many ways, the criticisms of the Apple Watch mirror the criticisms of the iPod 13 years ago.

Many people forget that the original iPod was really just an accessory for the Macintosh at the time (much like the Apple Watch is an accessory for the iPhone) -- it wasn't compatible with Windows computers. It also didn't share the universal appeal of the now ubiquitous smartphone. It was a niche offering and an expensive one at that.

It's a mistake to expect the Apple Watch to sell in numbers that mimic the iPhone. But as the spiritual successor to the iPod (which was quietly discontinued in its Classic form this week), Apple investors should still expect it to sell in big numbers. Other electronics companies, such as Garmin (GRMN), have already proven that the market is willing to buy less-capable smart watches at a higher price than the Apple Watch.

Finally, there's Apple Pay, the surprise announcement of the event.

For anyone who was watching Apple's intraday price action on Tuesday, it was Apple Pay, not the new phone or watch, that got shares to move. And it's understandable why. Apple has a huge installed base, and its payment system has the potential to become widely adopted very quickly. Even better, reports from Bloomberg indicate that Apple will collect fees from the banks on the Apple Pay system.

In other words, every time a purchase is made using Apple Pay, the guys in Cupertino get a cut of the $40 billion in swipe fees that banks rake in each year. Buy-in from some of the biggest financial institutions means that the service is likely to be widely used right out the gate.

Dealing with secure data is nothing new for Apple either. While much has been made of the "Celebgate" scandal (which reportedly resulted from weak passwords and social engineering, not a breach of Apple's iCloud service), most people have ignored the fact that Apple already has more than 800 million credit cards on file through iTunes.

At a time when data breaches are running rampant at retailers such as Target (TGT) and Home Depot (HD) , the added security of Apple Pay is the right solution at the right time.

A Cheap Stock, Even Now

Frankly, all of the offerings from Tuesday's event are more evolutionary than revolutionary. After all, it takes a lot to move the growth needle at a company that generated almost $171 billion in its most recent fiscal year. But considering the fact that Apple is inexpensive, even now, there's still a big opportunity here for investors who have been late to the game.

Apple trades for a price-to-earnings ratio of 16.4, a number that's higher than it was a year ago but not by much. For instance, it's still 29% lower than its average peer, meaning that despite an impressive rally in the last year, fundamental improvements and rallies elsewhere in the tech sector have left this stock looking cheap on a relative basis.

And that's jus the raw P/E number. It includes Apple's massive cash holdings, which add up to enough to pay for 22% of the firm's huge market capitalization as I write. That's a large degree of risk reduction for investors who buy shares today. Take out Apple's $133.47 billion in net cash and investments, and the firm's ex-cash P/E drops to just 12.7 times earnings.

That means that Apple still trades for a lower earnings multiple than Altra Group's (MO) 20 times earnings or Target's 26 times earnings.

It makes sense for Wall Street to discount Apple's growth to some extent. There are only so many humans on the face of the earth to sell iPhones to, after all, but putting a lower multiple on Apple than big tobacco or big box retail is absurd.

Likewise, Apple's stock no longer has the barriers to upside that it did just a year ago. According to Morgan Stanley, Apple is actually under-owned, with institutional holdings a mere two-thirds of Apple's weighting in the S&P 500. The firm's stock split is another factor that adds structural support for shares in 2014.

The technicals look attractive here as well. According to statistical data from quant firm EidoSearch, Apple has as much as 36% upside over the next six months, with twice as much reward as risk today. That shouldn't be particularly surprising given Apple's chart.

Put simply, Apple has been a "buy-the-dips stock" going back to the start of the summer, and we're just now coming off a dip for the fourth time over the course of the channel.

Even though shares of Apple have been in rally mode for the last year, based on the fundamental and technical factors, it still looks like a good time to be a buyer. But the discounts in AAPL aren't going to last for long, particularly as the business terms of Apple Pay become more transparent and early sales numbers for Apple's new devices get reported.

Don't wait. There's still time to buy AAPL here.

-- Written by Jonas Elmerraji in Baltimore.

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At the time of publication, author was long AAPL and GRMN. Jonas Elmerraji, CMT, is a senior market analyst at Agora Financial in Baltimore and a contributor to TheStreet. Before that, he managed a portfolio of stocks for an investment advisory returned 15% in 2008. He has been featured in Forbes , Investor's Business Daily, and on CNBC.com. Jonas holds a degree in financial economics from UMBC and the Chartered Market Technician designation. Follow Jonas on Twitter @JonasElmerraji

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