Forecast came true

Is Apple the perfect stock?
23 october 2014

At risk of sounding like an iFanboy ... is Apple the perfect stock?

Apple hit a new all-time high Wednesday morning (over $104 a share). The company'sstrong earnings report on Monday proved to any doubters that Apple (AAPL, Tech30) is still a highly innovative company with products that its loyal customers crave.

Investors are now brushing aside the recent negative headlines about Apple.

All those concerns about nude celebrity photos floating around the Web after iCloud accounts were hacked? Wall Street isn't worried anymore. Problems with the iOS 8.0.1 update? Forgive and forget. The glitch with its new Apple Pay service that's caused some customers (including CNN's Samuel Burke) being charged twice? Investors have issued a collective iYawn.

The truth is Apple isn't just a high-tech momentum play anymore. There's more to the story than excitement about the iPhone 6 and 6 Plus as well as Apple Pay and the upcoming Apple Watch.

The company is rewarding shareholders with a dividend that yields nearly 2%. That's only slightly lower than the rate for a plain vanilla U.S. 10 Year Treasury bond.

Apple is also buying back shares -- although not as much as activist investor Carl Icahn would like. And it has $155 billion in cash left over to use for research and development, acquisitions or other strategies that can fuel more revenue and earnings growth.

Time to put Apple in the Dow! Heck, I think that it might finally be time for Apple to get the ultimate market honor. It should be added to the Dow Jones Industrial Average. It makes no sense to me that the world's most valuable company is not among the Dow 30.

The only major knock against it was that it used to have a stock price above $600 ... and because the Dow is price-weighted, Apple would have an unusually large impact on the Dow's daily moves. But following Apple's 7-1 stock split earlier this year, the stock price is now around $100.

So it would have less of an influence on the Dow than current (and struggling) componentIBM (IBM, Tech30), which I'd argue should be removed in favor of Apple.

Still, it's only natural to wonder if the stock has peaked. Shares are up nearly 30% this year after all.

Apple is that rare hybrid: growth and value. But Apple trades at only 13 times the earnings estimate for this fiscal year.

That's reasonable when you consider that analysts are predicting long-term earnings growth rate of about 13% a year for the next few years ... a number that could prove to be low if the Apple Watch validates the wearables market and/or Apple has something else new up its sleeve. (The long awaited iTV perhaps?)

Apple's stock is also cheaper than rivals Google (GOOGL, Tech30) and Microsoft -- and significantly less expensive than Amazon (AMZN, Tech30) and Facebook (FB, Tech30).

So how much higher can Apple's stock go? Icahn thinks it could hit $200 if Apple would repurchase even more shares. That seems unlikely.

Wall Street analysts have more reasonable expectations. The consensus price target, according to FactSet Research, is $114.49 a share. That's up about 10% from current levels.

Strong management team in place. Of course, there are many risks facing Apple. It wasn't that long ago that everyone thought Cook was doing a lousy job. All it would take is a couple of quarters of poor earnings for the "Cook must go" chants to return.

But I honestly don't think that will happen. Cook clearly has a great bench of talent behind him with the likes of Jony Ive, Phil Schiller and Craig Federighi. The addition of Angela Ahrendts, formerly the CEO of Burberry (BURBY), as the head of Apple's retail efforts also has been a good move. Apple's retail sales were up 15% in its most recent quarter.

Don't be surprised to see Apple shares continue to do well. Sure, there may be some occasional rough patches in between product releases. That's to be expected with any tech company.

Good luck finding another blue chip stock that's still reporting solid earnings, isn't priced at a bubble-like valuation and also pays a steady dividend.

Apple may not be literally one of a kind. But there aren't many other quality stocks like it out there. 

http://money.cnn.com/

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Is Apple the perfect stock?

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