Why Apple Without Steve Jobs Is Still a Buy

Editor's note: We first published this column on August 24, following Steve Jobs' resignation as Apple CEO. Jobs died on October 5 at age 56. We've updated the column with share prices and earnings estimates as of October 5. The company's stock has gone up 0.5% since the August 24 close, compared to a 2.8% decline for the S&P 500.We're about to find out how much Wall Street thinks Steve Jobs was worth to Apple (symbol AAPL).

Clearly, Jobs's role can't be overstated. But the technology sector is filled with brilliant innovators, and some of them, including new CEO Tim Cook, are probably high in Apple's executive ranks and among the company's legion of engineers and product designers. Even before Jobs resigned, we at Kiplinger's were bullish on Apple's prospects in a post-Jobs world.

Reacting to word of his death, Canaccord technology analyst Michael Walkley reiterated his buy rating on Apple and his $545 one-year price target for the stock. "While Mr. Jobs' passion, creativity, and keen eye for consumer preference will be missed, we believe Jobs and Apple's executive team have built an unparalleled talent base and corporate culture that sets the table for future success and innovation," Walkey wrote. "We believe Tim Cook is well qualified for his new role as CEO and has at his disposal a deep and talented executive team in the areas of supply chain management, hardware/software design and product marketing."

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Apple’s stock is extraordinarily cheap for a company that has produced such dazzling results. At the October 5 close of $378.25, Apple shares sold for less than 12 times the average analyst earnings estimate of $32.74 for the fiscal year that ends September 2012. If you subtract the $76 billion, or $82 per share, of cash and long-term investments on the company’s balance sheet from the share price, Apple sells for just 9 times estimated earnings.

A valuation so modest seems to provide a lot of downside protection for a company that delivered earnings growth of 70% annualized over the past five years. The next five years certainly won’t be so lucrative, but they don’t have to be for the stock to produce good returns. (For the record, analysts on average see earnings growing at a rate of 22.7% annually over the next three to five years.)

My advice: At its current price, Apple shares remain attractive. Of course, you can't expect the stock to hold up when the overall market tanks, and there are enough concerns out there to suggest that the correction that started last April is not over. I suggest using market pullbacks to accumulate the stock at lower prices.