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Despite a fantastic quarter, a stellar balance sheet and a slew of new products, Apple is still just 15 points from its 52-week low, even after Tuesday’s 889-point rally. That should tell you how other weaker growth stocks should fare in the market, Cramer said.
Apple [AAPL
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], which averaged a 40 to 50 multiple over the past three years, is trading at just 14 times earnings right now. If Steve Jobs’ company was trading in that average, AAPL would fetch closer to $200 on the Nasdaq right now rather than the near $100 it’s earning now.
Here’s a company that sold 7 million iPhones last quarter, more than the previous four quarters combined. Apple also recently released a fourth-generation iPod nano, a second-generation iPod Touch, and new MacBook and MacBook Pro laptops. As good as last quarter was – Apple reported $1.26 a share in earnings versus the Street’s expected $1.11 – a lot of potential customers held off waiting for these new products. So next quarter could be much better.
And the balance sheet, look at this balance sheet: $24.5 billion in cash, about $28 per share or about 30% of the price. Free cash flow for the last quarter was $4.30 a share versus that $1.26 in EPS.
What’s crazy, though, despite all this, is that Wall Street expects absolutely no growth from Apple in 2009. Analysts predict $5.36 a share in earnings next year, which is exactly what they were in fiscal 2008. That’s highly unlikely given the fact that Apple has averaged a 10% beat over its last four quarters and there are so many positives feeding into this company.
Apple is the perfect barometer for this market. During Cramer’s career as a broker and money manager, he’d always watch the strongest company, whether it was Merck [MRK
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], Pfizer [PFE
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], Cisco [CSCO
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] or Google [GOOG
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], to see how it fared in the overall environment. If even the strongest performer wasn’t working, such as Apple on most days lately (other than today), then lesser names wouldn’t either. Proof of Cramer’s theory can be seen in today’s action. Apple opened the day up $3, and the rest of the market followed. And when Apple’s down despite its solid business, most likely the market is as well.
So stay away from those weaker stocks for now. Apple can be owned, Cramer said, but only because of its superior performance. Others cannot.
This doesn’t mean Cramer’s recommended stocks for this market don’t work. Dividend plays, recession-resistant companies and those that are trading at or near their cash all still work here. He just wanted investors to be wary of growth right now, and to offer them a unique and valuable way to follow the market.
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