Apple: Can a $500 Stock With a $467 Billion Market Cap Actually Be Cheap?

With Apple crossing the $500 mark for the first time in history, its valuation is worth examining.

Today, for the first time in its vaunted history, tech powerhouse Apple (AAPL) crossed the mythical $500 mark, giving it an incredible market cap of $467 billion as of the time I'm writing this.

In the spirit of the modern Internet, I'm going to let you know that this is enough money to buy Cisco (CSCO), IBM (IBM), and Oracle (ORCL) -- or 93.4 billion Subway $5 FootLongs.

In the grand scheme of things, $500 isn't a whole lot different than $490 or $510, but as human beings, we're attracted to round numbers. This, plus the fact that so few stocks trade at around the $500 mark, makes it a noteworthy psychological hurdle for Apple, which means that now a good time to ask:

Is Apple Cheap?

If you're as glued to the financial media and Twit-o-sphere as I am, then you know that the two sides of Apple debates go something like this:

The Bulls

Apple is seeing incredible demand for its iPhone and iPad products while cementing its status as the world's greatest brand, and the stock is trading at just 12 times forward earnings. And if we play the back-out-the-cash game, it is trading at nine times forward earnings.

And that's despite the fact that the company grew revenues by 73% and earnings by 115% in its most recent quarter (see: Apple Earnings: Outstanding Achievement in the Field of Excellence).

The Bears

Things can't get any better than this and the stock's gone up too much! ROAR! STOCK GO DOWN NOW!

In all seriousness, bearish Apple arguments often contain half-truths, outright distortions (see: Correcting an Apple Bear, One More Time), or my personal favorite, no evidence whatsoever.

So since I can't find many sensible bearish arguments against Apple, I'll make up my own:

With the passing of Steve Jobs, Apple no longer has the world's greatest tech visionary and salesman pushing it forward. And while Tim Cook is a talented operations executive, there is no evidence that he can fill Jobs' role as a product guru. In addition, smartphone penetration is skyrocketing in developed countries, which could eventually put a damper on iPhone sales growth as the available market becomes saturated.

The low P/E ratio is telling us one thing and one thing only -- growth is peaking.

Okay. Let's move on.

Who's Right? Who's Wrong?

Technically speaking, Apple is a very cheap stock no matter how you look at it.

P/E, EV/Sales, EV/EBITDA, whatever. On all these metrics, it is just über-cheap.

But here's the thing.

Stocks don't go up because they are "cheap."

They go up when there are more buyers than sellers.

Apple's challenge is to find more marginal buyers, and they're hard to come by because so many individual and institutional investors are already behind the stock.

Everybody knows how well Apple is doing now, and how well it will likely do in the near future.

Heck, many people -- including me in the case of an Apple iTV -- are optimistic about Apple products that don't even exist yet!

I'd actually say that an awful lot of Apple shareholders are facing a common affliction among investors -- the belief that one's ideas are far more unique than they actually are. The idea that you're early on something implies that there are a lot of people on the outside that haven't gotten in yet -- but that's just not the case with Apple.

I have confidence in saying this because I find that Apple bulls (you can count me in here) sometimes talk about the company's strengths as if these things weren't obvious to everyone.

If Apple was any other company, it would have gone up a heck of a lot more than 6% when it dropped its blockbuster earnings report on January 24. Apple beat revenue expectations by 19%, and earnings expectations by 38%.

Yes, Apple has subsequently crawled up to the $500-level -- but I think we can all agree that Apple "should" have crossed $500, or even $550, that day.

But it didn't, because the difficulty of finding marginal buyers on such a widely-owned stock is keeping a lid on what seems like an inevitable multiple expansion.

Now, since Apple is one of only two stock holdings of mine that I actually view as a real-deal long-term investment, let me give you my line of thinking.

To make a very long fundamental story short, Apple is ripping apart the competition (with the exception of Samsung in smartphones) in virtually every product category, and making tons of money doing it.

I see minimal downside because the competition is actually getting weaker, not stronger, and the valuation is compelling enough to keep the bulls shoring up the stock on the dips.

Now, I see multiple expansion coming eventually because it's obvious that Apple is one of the few beacons of hope in the highly-commoditized and boring consumer-electronics and computer industries. I say commoditized and boring because every company pretty much makes the same stuff, and that means margins go straight to zero.

Look at what's going on in the world.

1. Sony (SNE), Panasonic, and Samsung are destroying the idea of making money selling TVs.

2. HTC and Motorola (MMI) can no longer succeed in a commoditized Google (GOOG) Android smartphone market because no one can tell their products apart.

3. The Microsoft (MSFT) Windows PC world is completely homogenized -- can anyone explain why a Dell (DELL) is better than a Hewlett-Packard (HPQ)? Or vice versa?

Over time, I expect people who already own Apple to throw money at the stock simply because it's the last great brand still standing.

Reluctant Apple bears may join the party -- and that may fuel the final, ultimate bubble that those same folks are fearing today.

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