Buy three Amazon shares for one Apple share

Posted on by Mike Evans

I don’t make a point of posting the latest Apple share price every day. But today the stock closed at $493.05 and touched $496.75 in intra-day trading. Unless there is some really bad news forcing all stocks down, it now seems certain that Apple will cruise past $500 before the end of next week, perhaps, even, tomorrow.

Since Steve Jobs’s death in October, Apple stock has soared by over $150 a share and the company is now the world’s most valuable. It seems only a short time since we were excited about Apple’s valuation overtaking that of Microsoft (it was on 25 May 2010, under two years ago) . Now Apple is worth more than Microsoft and Google put together.

I believe the real reason for the surge in recent months, discounting the stellar fourth-quarter results, is the death of Steve Jobs itself. For several years, during his long illness, there was uncertainty. To what extent were the fortunes of Apple linked to one man? What would happen if Steve died? Who could possibly step into his tatty old trainers?

Such uncertainty is a classic reason for a stock price to be depressed. Now we have answers. The markets have seen that Apple can survive, and survive well, in a very difficult international financial situation. Hence the stock is beginning to show its true colours, amply prodded by the latest results and the seeming world-wide mania for the company’s products.

Yet despite the rise over the past months, Apple’s stock is still undervalued by most normal parameters. Even now, after today’s advance, the price/earnings ratio is still a reasonable 14.07. And bear in mind that over 20 percent of the company’s value is held in cash. Amazon, by contrast, enjoys an astronomic P/E of 135 and even Google comes in at 20.55. Only Microsoft, in Apple’s peer group, suffers from a lower ratio (11.13).

To borrow from Amazon’s latest advertising theme, you can (nearly) buy three Amazon shares for one Apple share. Are you better buying 3 Amazon or 1 Apple? I don’t know. I realise it is a pretty fatuous comparison, but it does make you think, doesn’t it?

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