Consensus earnings growth does not justify share price for AAPL, AMZN, NOK, VMW, or CRM

 We have been seeing a lot of price justification related to AAPL’s recent climb to near the $300 level. Arguments abound that despite trading at a P/E multiple of 25.3x, AAPL is cheap on a fundamental basis due on its growth trajectory and its cash position. Based on comparative multiples, this may be a flawed argument. A classic method to test whether the market is pricing appropriately for future growth is to calculate the PEG ratio (price-to-earnings-growth). If a stock had a PEG ratio of 1.0x, investors should consider future earnings growth to be fully priced into the stock, and that its growth trajectory is “fairly valued”. Below 1.0x, there is a gap between the stock price and future earnings, and there is a buying opportunity. A PEG ratio above 1.0x infers that the market is overpaying for earnings growth.

Why MSFT ORCL RIMM VMW and HP will continue to post solid results.

We have been building a thesis that, regardless of the recent deceleration of economic growth in the US economy, the enterprise IT sector is on a bit of a roll that should persist for the next several quarters. Investors may want to look at business/enterprise IT technology for overweighted returns. Please note that 26% of the aggregate market cap of the sector is in cash and/or equivalents.
RIMM, MSFT, ORCL, VMW, and HP all reported better than expected results, and all presented fairly positive outlooks. Although CSCO met expectations, its outlook was positive. Our channel sources confirm that American business is investing in productivity at the desktop, in the pocket, and in the back office.