Markets

Why Apple's Stock Is a Buy After Jobs Resignation

By Conrad Aenlle

Updated on: August 24, 2011 / 8:50 PM EDT / MoneyWatch

The announcement late Wednesday that Steve Jobs is resignin g as Apple's chief executive, while retaining his role as chairman, is a bit like the recent U.S. Treasury downgrade - inevitable yet surprising all the same. Jobs's long spell of ill health meant that his resignation was a long time coming.

Just as the Treasury downgrade was the catalyst for a huge sell-off in the stock market, the changing of the guard at Apple sent its stock (AAPL) tumbling in after-hours trading moments after it was announced at about 7 p.m. Eastern time. It was down about $25 a share, or more than 6.6 percent from the closing price, but gained back nearly $6 of the loss by the end of the late session. Once the initial shock of the resignation wears off, look for Apple to bounce back further.

A Wall Street Journal piece articulated the concerns that investors evidently felt about the resignation of Jobs and his replacement by Tim Cook, Apple's chief operating officer:

"...Mr. Cook faces a big challenge in stepping into Mr. Jobs's shoes because he must prove that Apple can succeed without Mr. Jobs. Mr. Jobs not only co-founded the company but brought Apple back from near bankruptcy when he returned to the company in 1997. He is considered the visionary behind the company and has played a key role in reviving the Macintosh computer business and developing new products like the iPod, iPhone and iPad.
" 'Great companies rarely go from strength to strength,' said Charles O'Reilly, a management expert at Stanford University's Graduate School of Business, adding that Apple faces a particular challenge in that Mr. Jobs has had an unusually strong influence in setting Apple's corporate culture and strategy."
True, but by staying on as chairman, Jobs is showing that he has no plans to stop influencing the company any time soon. Jobs apparently will continue to be the big-picture idea man at Apple, doing much to set the long-term agenda.

As for Cook, he must have done a pretty fair job as Apple's chief operating officer, considering that Apple's operations aren't exactly struggling or deficient in any meaningful way. He seems like the ideal successor to Jobs. The Journal story suggested that a smooth transition is likely, whatever apprehensions investors may have:

"People familiar with the situation have said that Mr. Jobs continues to be active at Apple and is closely involved in the company's product strategy. Apple watchers don't expect that to change even after Mr. Cook takes over."
It's doubtful that the resignation will materially affect Apple's business (just as the Treasury downgrade probably will have little practical impact on the U.S. economy), so the selling in Apple's stock seems misplaced. Apple trades at roughly 11 times Wall Street estimates for earnings in the next fiscal year, and the one uncertainty about the company that has been gnawing at investors has just been eliminated.