Is Apple Cheap? Relatively Speaking, Yes
May 23rd 2011 2:00PM
Updated May 24th 2011 8:19AM
Apple (AAPL), the hottest stock on the planet -- LinkedIn's IPO notwithstanding -- is an overhyped tech stock, right? Actually, by relative valuation measures, data suggest it's cheap.
Ordinarily index investors needn't concern themselves with an individual stock's valuation. That is to say, if a stock looks cheap by price/earnings ratio (PE) and likely to go higher, or too expensive and therefore bound for a fall.
Even after rebalancing by the Nasdaq, Apple will still account for 12% of assets (down from 20%) of the PowerShares QQQ ETF (QQQ). Apple is also the largest holding of the iShares Dow Jones U.S. Technology Sector Fund ETF (IYW), accounting for about 14 percent of the fund's assets, according to the latest data. And at the Internet Architecture HOLDRs (IAH), Apple makes up 23 percent of the portfolio. Not that you would actually own the Internet Architecture HOLDRs.
Since Apple has so much sway in those ETFs, we thought we'd take a look at some relative valuations measures -- all of which suggest the stock is a bargain.
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