Why Apple Truly Is a "No-Brainer" Investment

While Carl Icahn's public endorsement of Apple may be derived out of shameless self-interest, there's little doubt that the company provides a very compelling story for investors, particularly those concerned with balance sheet fundamentals - quite simply, Apple stock has yet to be appreciated for the value it offers.

Jan 31, 2014 at 5:00PM

Apple's (NASDAQ:AAPL) halcyon days of 40%-50% earnings growth are certainly behind it. That tends to happen when a company approaches $500 billion in market capitalization. While the growth story in Cupertino is perhaps less compelling than it was a few years ago when the iPod, iPhone, and iPad were disrupting entire industries, other avenues for growth have since surfaced. 

Eastern promises
Asia represents a golden opportunity, particularly with the completion of the NTT DoCoMo and China Mobile deals in Japan and China, respectively. It is widely believed that the China Mobile deal alone could add $4.00 per share in earnings, representing a 10% addition to the bottom line. With limited smartphone penetration among roughly one billion mobile users in China, the potential for future iPhone sales in the country is staggering. iPad sales could also be enhanced as the buildout of China Mobile's 4G network could make that a possibility in the future, whenever the carrier sees fit to add the device to its mobile offerings.

Bigger really is better
In addition to the highly anticipated China Mobile deal, the prospect of a larger iPhone with an enlarged screen approaching 5 inches, rumored to be unveiled sometime in 2014, could help Apple take market share from Samsung, and most importantly, Google's Android operating system. Apple can't ignore the popularity of phablets any longer, and while the company remains steadfast in its support for single-handed use, even a modest increase in screen size could really help juice sales of the iPhone. Considering the lofty prices of most phablets, Apple could also see some margin expansion on its flagship device after several quarters of margin compression, which would be sure to delight investors.

Making the fundamental case
While sales of the iPhone and iPad are obviously the most important drivers of earnings growth for Apple at the moment, they are certainly not the only factors prospective investors should consider. Unlocking the balance sheet through a greatly expanded share buyback program and a healthy dividend should go a long way toward propping up shares in this maturing company. While Carl Icahn's notion of a $150 billion buyback may be somewhat fanciful, Apple's current commitment to returning $100 billion to shareholders through 2015 ($60 billion through the buyback) is certainly nothing to sneeze at. 

The buyback will also boost EPS by a steadily decreasing share count.  So despite the fact that top-line growth is likely to remain modest, EPS growth could be much more robust going forward. Having already retired about 40 million shares, and with a war chest of nearly $150 billion and free cash flow of $7.6 billion last quarter, Apple can easily expand its program further and add to its treasury stock at a very high rate, underscoring Icahn's major investment thesis. EPS should get a major boost from the buyback over the next several years, which can help to make up for muted organic growth, providing yet another safety net for Apple investors. Throw in a 2.2% dividend with only a 30% payout ratio, and income investors should be salivating at the potential for a growing income stream from this stock. 

No Jobs?  No problem
On top of it all, if Apple is really about to unveil more disruptive products, rumored to be a fully loaded and fully integrated Apple TV, and innovative wearable devices, then the vision and ingenuity attributed to the late Steve Jobs may not be entirely lost to the company after all. With the success of streaming services such as Netflix giving pause to the large cable companies, it's clear that a huge opportunity exists. Wearable devices are also an intriguing new product category for mobile and could certainly augment sales of the iPhone and iPad. Most importantly, innovative new product categories would soothe the investor psyche, long since damaged by the death of Steve Jobs and the company's subsequent lack of "innovation." That alone could be a significant driver to multiple expansion in the stock, as investor sentiment rises.

The headwinds Apple faced in 2013 could turn into tailwinds in 2014 as Samsung's meteoric rise has slowed and margins finally appear to be stabilizing. With promising new markets opening up in Asia, high-end mobile opportunities in the phablet space, intriguing new product categories in television and wearables, and the insurance provided by a pristine balance sheet, it's a wonder that Apple sells for a mere 10.8 times forward earnings. In a market where IPO's of companies without profits garner billions in investor dollars, picking up some shares of this undervalued tech stalwart truly is a "no-brainer."

Apple's next creation will be revolutionary!
If you thought the iPod, the iPhone, and the iPad were amazing, just wait until you see this. One hundred of Apple's top engineers are busy building one in a secret lab. And an ABI Research report predicts 485 million of them could be sold over the next decade. But you can invest in it right now... for just a fraction of the price of AAPL stock. Click here to get the full story in this eye-opening new report.

Ben Black owns shares of Apple. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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