2 Reasons Apple Is a Straight-Up Bargain

As Samsung revels in its recent success, Apple shares still hover near their 52-week low, more than 30% below their high of $700 in September. Though some of the Street's worries may be justified, bear scenarios are already priced into Apple's stock at today's price. Here are two reasons Apple is a straight-up bargain at $450 per share.

The smartphone market is enormous
As Apple CEO Tim Cook noted at the Goldman Sachs Tech Conference on Feb. 12, last year the smartphone market hit around 700 million units (referring to research by Strategy Analytics). Over the next four years, Cook explained, the market is expected to double to 1.4 billion.

Then Cook added in some of his own predictions and opinions, saying that he believes that "on a longer-term basis, all phones will be smartphones." Finally, he wrapped up his discussion of the smartphone market by calling it "a market that is incredible to be in, maybe one of the best markets of all time."

The challenge here, of course, is to eye Cook's bullish outlook with skepticism -- of course he's going to paint a rosy picture! But it turns out that Cook isn't the only one with the notion of an exploding smartphone market. A report by ABI Research estimates an installed base of 1.4 billion smartphones as early as the end of 2013.

Fellow Fool Evan Niu, CFA, recently cited two analysts that went beyond assessing the smartphone market in general, to analyze the low-end and midrange market segments for future growth. Their findings were mind-boggling.

Piper Jaffray analyst Gene Munster claims the low-end smartphone market opportunity could add up to around $135 billion in 2013. Morgan Stanley analyst Katy Huberty points to massive demand in China for an iPhone that costs around 2,000 yuan, or $330. She claims that an iPhone at this price point could dethrone many low-end flagship offerings.

Niu addresses the threat of cannibalization, saying that even if a cheaper iPhone cannibalizes Apple's higher-end models, "the net result will still be overwhelmingly positive, as Apple could potentially triple its addressable market in China."

To put it simply, Apple has plenty of runway left in the smartphone market.

Apple dominates the fast-growing tablet market
A Canalys research report, which controversially includes tablets in its survey of PCs, claims that Apple now captures 20% of the worldwide PC market. Furthermore, the report claims that one out of every six PCs shipped during the quarter was an iPad. And don't forget that Apple's iPad supplies were constrained during the first quarter.

Yes, Google's Nexus 7 and Amazon's Kindle Fire are pressuring Apple at lower price points, but Apple's $329 iPad Mini turned out to be very successful response to these 7-inch tablets. Canalys research analyst Pin-Chen Tang said, "Apple timed the launch of the iPad mini well," estimating that half of Apple's 22.9 million iPads sold during the quarter were iPad Minis. If Apple can compete with smaller tablets in the $200 range this well, there is no reason for Apple to succumb to that lower price point. And if Apple's historical product launches are any indication of what will happen when Apple launches the next-generation iPad Mini, the price of the first generation iPad Mini will be reduced, aiding Apple's battle in the small-tablet market.

Web traffic data paints an even brighter picture of Apple's dominance in tablets. In the U.S. and Canada, Apple's iPad represents 81% of tablet web traffic. Second and third place belong to Amazon and Google, who respectively captured 7.7% and 3.9% of tablet web traffic -- far behind Apple. Their progress, however, is notable. The Canalys report claims that Apple lost 5% of its U.S. and Canada market share during the holidays, mostly due to Amazon and Google's cheaper tablets.

Apple's dominance in tablets going into 2013 is extremely important in light of numerous research reports that point to a tablet market that is growing faster than the smartphone market. For instance, according to ABI, the tablet market is expected to grow by 125% in 2013, compared to 44% smartphone market growth.

Unrealistically gloomy expectations
Given an enormous smartphone market and a dominant position in the fast-growing tablet market, Apple just doesn't merit a P/E of 10.

There's no doubt that Apple is at the center of technology's largest revolution ever, and that longtime shareholders have been handsomely rewarded with over 1,000% gains. However, there is a debate raging as to whether Apple remains a buy. The Motley Fool's senior technology analyst and managing bureau chief, Eric Bleeker, is prepared to fill you in on both reasons to buy and reasons to sell Apple, and what opportunities are left for the company (and more importantly, your portfolio) going forward. To get instant access to his latest thinking on Apple, simply click here now.

The article 2 Reasons Apple Is a Straight-Up Bargain originally appeared on Fool.com.

Fool contributor Daniel Sparks has no position in any stocks mentioned. The Motley Fool recommends Amazon.com, Apple, Goldman Sachs, and Google. The Motley Fool owns shares of Amazon.com, Apple, and Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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