September 25, 2011 in Business

Despite changes at the top, Apple remains a smart buy

 
Tags:Apple

Steve Jobs, founder of Apple (Nasdaq: AAPL) and facing health issues, has resigned as CEO.

But Apple remains the same company it was the day before the announcement. Tim Cook, the new CEO, has held that position in all but name since January, when Jobs took a medical leave of absence. As chief operating officer, he made Apple into a lean machine. Plus, Jobs leaves in place a strong team that should keep Apple selling gobs of products, producing tons of cash and expanding the reach of its ecosystem.

Apple is a strong company, but it does have its share of challenges. Competitors are releasing their own tablet computers to compete with the iPad, and Android phones are proving to be very competitive with iPhones. How Cook and his team respond to these threats over the next few quarters will offer a clearer picture of Apple’s ability to continue its growth.

How well Apple’s next new products do is also important. Success will show that Apple is in good hands, while flops might be a reason to sell. Despite these concerns and even because of them, uncertainty presents opportunity. The stock is trading at a P/E ratio near 15, well below its five-year average of 26.

(Motley Fool newsletters have recommended Apple stock and options on it. The Fool owns shares of it, too.)

Ask the Fool

Q: What does “pro forma” mean? – N.P., Farmington, N.M.

A: The term “pro forma” on a financial statement means that you’re looking at some “what if” numbers. Imagine that Nike merged with Toyota last July. At the end of the merged company’s fiscal year in December, you might see some pro forma financial statements in the Nike-Toyota annual report. These would show you the state of the firm over the year as if it had been a combined company all year long.

Pro forma results can be useful. If you were researching Nike-Toyota, it wouldn’t be too meaningful to contrast a pre-merger period’s results with post-merger results. By examining combined results, you can get a clearer idea of the company’s financial health.

Sometimes, though, companies have gotten carried away with pro forma numbers, showing positive earnings results they would have had if various bad things hadn’t happened.

Q: Where can I look up the value of homes in my neighborhood, to get a handle on my own home’s worth? – E.M., Biloxi, Miss.

A: A good real estate agent can provide that kind of data for you, but you can also find information online. Click over to Zillow.com and Trulia.com, where you’ll be able to look up estimated values of homes in various neighborhoods, prices of recently sold homes and much more. But be careful. Online data providers can be helpful, but their data isn’t always 100 percent accurate. That’s a big deal if you’re relying on it to price your home or make a bid.

If you’re buying or selling a home, it’s often smart to use an experienced agent, who might help you land a better price. Learn more at www.fool.com/how-to-invest.

My dumbest investment

Years ago, I did a little investing in stocks. A few, such as Disney, made money. (I got in at $36 and out at $44.) I also bought into Family Dollar. It shot up one day, and as I thought that anything that rises so fast will go down fast too, I planned to sell. But I wasn’t paying close enough attention, and it took a nosedive before I could sell.

I want to buy Disney again, but I feel like it’s too late. Stocks like that are good investments if you got in early, but now – where are they gonna go? – M.B., Carnesville, Ga.

The Fool responds: Most good stocks are good not just for early investors. IBM stock, for example, has averaged 12 percent annual growth over the past 20 years and 18 percent over the past five. General Electric has averaged 12 percent over the past 30 years. It’s also risky to try to time stocks. If you believe in a company’s long-term potential, consider holding for the long haul, as long as it appears healthy and isn’t grossly overvalued.


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