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Apple: A Must-Own Stock in This Market

Thursday, 27 May 2010 | 7:57 PM ET

Apple at $253 is cheap, not expensive, Cramer said on Thursday. He urged viewers to hold the stock until it reaches $300.

Tug of War
Cramer wonders if today's action signals a turnaround.

On a day like today, where the Dow shot up 285 points and the S&P 500 gains 3.3% even though the market’s fundamental’s haven’t yet changed for the better, investors should be selling many of their stocks into the strength. But there are certain names, like Apple , that are worth holding on to.

In fact, with Apple, where do you begin? A big piece of news today was that the Cupertino, Calif.-based company surpassed Microsoft in terms of market cap: $230.53 billion versus $227.86 billion, respectively. But that’s what happens when you’re “the greatest manufacturer on earth,” as Cramer described Steve Jobs’ outfit.

Unlike Microsoft, Apple still has growth ahead of it. Look at its end markets: 300 million computers should ship in 2010 and more than a billion cell phones, too. iTunes is the go-to market for music these days, and the iPhone and iPad are really just taking off. What does Microsoft have to boast about? Its Windows operating system and Office programs have reached a saturation point, leaving the company little room to expand.

To go a little deeper into the iPhone and iPad, consider the potential 15 million smartphones Apple could sell once Verizon Wireless takes it on. There are plenty of people who are eager to leave AT&T’s spotty network. Or the fact that of the 60 million netbooks expected to ship this year, 78% of potential buyers are considering an iPad. And that’s to say nothing of the applications for these devices, as Apple presently offers over 180,000 of them – way more than Google’s 50,000 – and adds more than 10,000 new apps a month.

And then there’s all that cash -- $50 a share, or a fifth of the share price. Cramer thinks Apple could earn between $17 and $20 in 2001, which means the stock is trading at a mere 12.5 times next year’s earnings. Even if AAPL reaches his $300 price target, the stock will still trade at only 15 times earnings.

“That’s less than almost every single growth stock I follow,” Cramer said, “and even less than the S&P 500’s multiple.”

So don’t be scared away by that $253 share price. And don’t worry about that big market cap. Because Apple is still selling for less than the average S&P stock. And that’s why Cramer thinks this company is still a buy.

Cramer’s charitable trust owns Apple.

Call Cramer: 1-800-743-CNBC

Questions for Cramer? madmoney@cnbc.com

Questions, comments, suggestions for the Mad Money website? madcap@cnbc.com

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