Is This the Perfect Time to Buy Apple?

With shares of Apple (NASDAQ:AAPL) now trading at $547, is the company a BUY, a WAIT and SEE, or a STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

Apple’s shares have not had the best few days and the stock literally sank into official bear-market territory on November 8 as it ended the day at $537.75, more than 23 percent below its all-time high of $702.10. However, several analysts have tried in the last couple of days to calm investor fears about the company and have reiterated mostly positive predictions as well as Buy recommendations.

The talk of supply contraints for its product has hovered around in the last two months and on Wednesday, the chairman of Hon Hai Precision Industry, Apple’s main manufacturer, said that production was still an issue. Terry Gou said his company was shipping “far fewer” iPhones than Apple had requested. However, Sterne Agee analyst Shaw Wu wrote in a research note on Friday that his checks across stores in the U.S. had indicated that supplies of the smartphone were beginning to go back up.

There are other concerns. Recently, IDC released a report that said Apple’s share of the tablet market dropped from 59.7 percent to 50.4 percent during the third quarter. The company has also received user criticism after it got rid of Google’s (NASDAQ:GOOG) Maps software in its iOS devices with a homegrown app that many found sub-standard.

Investors in the company are also beginning to take profits in fear of oncoming capital gains tax increases. Investment taxes are set to rise in January as an automatic measure, pushing the top rate on dividends to 43.4 percent from 15 percent and the top rate on capital gains to 23.8 percent from 15 percent.

But several Apple-specialist analysts have chosen to remain bullish on the company. Even Doug Kass of Seabreeze Partners Management, who has been bearish on the company’s shares over the last few months, said that he was now long Apple. “Hey, I never said it was a forbidden fruit,” Kass told The Wall Street Journal on Friday. ”Since I expressed my initial concerns in late September, Apple’s shares have fallen by $165. The shares now stand at $536, and I am buying.”

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H = High Quality Pipeline

There can be no complaints about the possibility held by Apple’s product line at the moment. With a brand new smartphone, a refreshed iPad, a smaller, new line of the iPad, and new computers all having been released in quick succession, Apple’s latest offerings to its customers are solid. However, one of the biggest questions plaguing the company in the past quarter has been about its inventory and by-now-obvious supply constraints.

That there is a manufacturing and component sourcing issue for the iPhone 5 as well as the iPad mini was no secret, but Wednesday’s statement from Hon Hai has confirmed that the issues still persist. Supply chain experts and analysts say managing component constraints will determine the shape of Apple’s current quarter.

E = Equity to Debt Ratio is Zero

Apple has a debt-to-equity ratio of 0.49, a very impressive feat when you compare its numbers to its major competitors. We also need to consider total debt and total cash on hand. Apple has no debt while owning $27.65 billion in total cash. Microsoft (NASDAQ:MSFT) has a debt-to-equity ratio of 0.19 with $12.78 billion in debt and $62.04 billion in total cash, while Hewlett-Packard (NYSE:HPQ) has a debt-to-equity ratio of 0.93 with $29.78 billion in debt and $9.53 billion in total cash.

T = Technicals on the Stock Chart are Strong

As of November 9, the stock price is 9.70 percent below its 20Day Simple Moving Average, 15.09 percent below the 50 Day SMA, and 6.99 percent below the 200 Day SMA. Since the beginning of 2012 the stock price has been in upward trend and is up 34.88 percent year-to-date and up 38.2 percent year-over-year.

Our 20-page proprietary analysis of Apple’s stock is ready. Click here and to get your Cheat Sheet report now.

E = Excellent Relative Performance to Peers

Many investors favor Return on Equity as a key metric to how well the company is operating. Apple’s operational performance is much healthier than its peer companies. The iPhone maker has an ROE of 42.84 percent while rival Microsoft comes in much lower at 24.5 percent and Hewlett-Packard has an ROE of negative 15.78 percent.

Operating margins are also critical for stock evaluation. Apple does better with a margin of 35.30 percent compared to 27.46 percent for Microsoft and negative 3.08 percent for Hewlett-Packard.

T = Trends Support the Industry in which the Company Operates

The iPhone has been of Apple’s most profitable products over the years and it happens to exist in an industry that has tremendous potential, according to most predictions. According to a recent report, the total installed base for smartphones worldwide hit 1.04 billion in the third quarter. Just a year ago, this number was 708 million. The same research said that smartphone penetration was still relatively low, with markets such as China, India, and Africa still waiting to be conquered.

Tablets, which are part of another industry that Apple has made its own, are also set to increase in demand. According to IDC, the worldwide tablet market will reach 165 million units next year and 260 million units by 2016.

Conclusion

Apple is facing several challenges in the coming few quarters and its brush with the bear market this week has not helped. The company needs to quickly fix its supply issues, get rid of the growing perception that its product changes are boring and not significant enough, and ensure that new rivals in the tablet space do not start forcing it to sacrifice margins. But despite the recent troubles, Apple still has fairly healthy financials as well as growth prospects and despite the bearish concerns, appears in far less trouble than many of its rivals.

This low point may, in fact, be a great chance to pick up shares of the company as we head into the holiday season, when shares tend to do very well. Oppenheimer analyst Ittai Kidron said in a note on Thursday that the recent stock selloff in the company had been “overdone” and urged clients to buy shares on the recent weakness.

Apple looks like an OUTPERFORM based on the key metrics above.

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