Cramer: Why It's Not Too Late to Buy Apple
Although trading at roughly $345 a share, Cramer said Monday Apple's stock is "way too cheap." After all, the "Mad Money" host thinks the technology stock could soon go to $400.
"I know you can be intimidated by the fact that Apple has had such a huge multi-year rally, even as it hasn’t done much of late, or by its triple-digit share price," Cramer said. "But I believe Apple still has a lot of room to run, especially when you consider that some of its biggest smartphone competitors, like Research In Motion and Nokia , are totally self-destructing right now."
After all, Cramer said the best metric for evaluating Apple has always been its ability to destroy value in its competitors.
Research In Motion, for example, recently slashed guidance for the current quarter by 9 percent. RIM executives blamed lower-than-expected BlackBerry volumes at lower-than-expected prices, Cramer said. The company blamed the weak results on its aging high-end devices, saying distributors are waiting in anticipation for RIM's new product launches. In other words, RIM wants investors to assume its new products will be more successful than its current offerings.
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RIM's real problem, however, is that it simply can't compete with Apple, Cramer said. He thinks its guidance is "way too aggressive." Even as management cut its earnings forecast for the quarter by 17 cents, it left its full-year guidance unchanged. The numbers suggest RIM expects to do better in the second half, but Cramer thinks the company will likely disappoint.
"The truth is that 'Age of the BlackBerry' has come and gone," Cramer said. "RIM used to have a proprietary, differentiated product: the only mobile phone that offered real e-mail. But now we’ve got smartphones galore that do this and mobile e-mail has become a commodity, offered at no extra cost."
Yet nearly half of RIM's profits come from fees associated to e-mail and connectivity, Cramer said. He thinks that business model is in serious danger, as RIM's dominance with corporate customers is being challenged by Apple. The iPhone has changed the nature of business to where e-mail alone is not enough, Cramer said. People now want the ability to browse the Web, as well as applications. Apple's operating system offers more than 400,000 apps while RIM has just 25,000.
Nokia's business is also being hurt by Apple, Cramer said. The communication equipment company gave a grim outlook when it reported earnings on April 21. It said its smartphone market share had fell from 40.9 percent to 26.2 percent. The technology name recently parted ways with its mobile phone operating system, Symbian, and announced it would layoff roughly 7,000 employees.
Cramer thinks both RIM and Nokia are value traps. Both stocks may seem cheap, as they're selling for 7.6 and 11.5 times earnings respectively, but Cramer thinks they're only going to get cheaper. Besides, Apple is currently trading at less than 12 times earnings when you back out the $71 in cash per share on the balance sheet, Cramer said. That's roughly the same multiple as Nokia.
"Stay the heck away from Research in Motion and Nokia. These two companies are falling by the smartphone wayside," Cramer said. "Bad news for them, but great news for Apple, which deserves to be much higher given its spectacular quarter and the fact that the competition is falling apart. I say Apple goes to $400, at least, and it’s not too late for you to buy."
When this story was published, Cramer's charitable trust owned Apple.
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