Apple Inc. (AAPL), Cirrus Logic, Inc. (CRUS): Buying Great Businesses When There Is Mayhem on the Street

As shares of Apple Inc. (NASDAQ:AAPL) have collapsed over the past few months due to concerns over loss of market share in the smartphone space, shares of one of its suppliers, Cirrus Logic, Inc. (NASDAQ:CRUS), have been decimated.

Eighteenth century British nobleman Baron Rothschild, of the famed Rothschild banking family, once famously said: “The time to buy is when there is blood in the streets.” The view that this statement communicates; to take long-term advantage of opportunities created by emotionally driven actions that were based on short-term situations is one I share. That approach appears to apply today for investors interested in initiating positions in Apple or Cirrus Logic.

Taking a bite out of Apple

Just as I thought it was an excessively optimistic assessment when I read the prediction last September of Apple trading at $1,650/share by the end of 2015, I almost fell in the floor when I read that David Trainer, president of New Constructs, a Nashville-based research firm, had predicted that Apple Inc. (NASDAQ:AAPL) shares are only worth $240. The former headline provided me with a warning of a top; the latter served as a sign a bottom had been reached and the stock could be poised to move higher.

While there has been an enormous amount of handwringing related to the death of Steve Jobs and the impact that will have on Apple Inc. (NASDAQ:AAPL)’s future performance, I believe the angst is vastly overblown as there is only so much impact one individual can have on a $400 billion business. The teams that conceive, design, build, and market Apple Inc. (NASDAQ:AAPL)’s products remain in place and, while Steve Jobs will be missed, his legacy will remain intact.

Right now, there is blood in the streets of one of the most recognized brands in the world as the market has taken a 37% bite out of Apple Inc. (NASDAQ:AAPL)’s market capitalization in an absolute panic over a slowing rate of growth, and cut the valuation of the business to a P/E multiple of only 10 times 2014 consensus earnings. Considering that the five-year annual earnings growth is projected at 15%, this business is just too cheap to last at this level.

Add in the 2.76% dividend yield and the recently announced plans to distribute an additional $100 billion to shareholders between increased dividends and share repurchases, coupled with the pervasive negative sentiment, and we have the makings of a stock that is poised for potentially explosive gains over an expanded time horizon of at least five years.

Taking more than a bite out of a supplier

As investors took a bite out of Apple Inc. (NASDAQ:AAPL), they made applesauce out of its supplier, Cirrus Logic, Inc. (NASDAQ:CRUS), that derives approximately 85% of its revenue from sales of mobile device components to Apple. From its high of $45.49 reached in September last year to its 52-week low of $17.33 seen just last month, investors decimated the share price of Cirrus by 62%, an astonishing fall for a business with no debt and substantial year over year growth.