Why Apple Truly Is a "No-Brainer" Investment

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.

Conclusion
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."

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