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This Just In: Deutsche Bank Says It's Time to Buy Apple Inc.

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At The Motley Fool, we poke plenty of fun at Wall Street analysts and their endless cycle of upgrades, downgrades, and "initiating coverage at neutral." So you might think we'd be the last people to give virtual ink to such "news." And we would be -- if that were all we were doing.

But in "This Just In," we don't simply tell you what the analysts said. We'll also show you whether they know what they're talking about. To help, we've enlisted Motley Fool CAPS, our supercomputer tool for rating stocks and analysts alike. With CAPS, we track the long-term performance of Wall Street's best and brightest -- and its worst and sorriest, too.

And speaking of the best...
You wouldn't know it from the stock's wobbly performance this morning, but shares of Apple (NASDAQ: AAPL  ) just got a big vote of approval up on Wall Street, where international megabanker Deutsche Bank has initiated coverage with a buy rating.

Cited on this morning, Deutsche laid out a raft of reasons for expecting Apple stock to outperform the market, including Apple's:

  • "dominant position in smartphones and tablets";
  • "robust ... high teens" growth expected in smartphone unit sales;
  • even greater "mid-20%s" growth in sales of tablet computers; and
  • "products [that] represent the gold standard" for tech consumers in both categories;

Deutsche also noted that Apple could see further growth in new product categories such as smartwatches, Apple-branded televisions, and "connected home" products as the Internet of Things comes into being. Defending its prediction that the company will outperform its fellow techs, along with the stock market at large, Deutsche argued that "Apple still has the ability to 'surprise and delight' its customers, therefore any new and successful product would provide upside to the company's already above-market growth rates."

But is Deutsche right about that?

Let's go to the tape
Over the nearly eight years that we've been tracking and recording this analyst's performance, we've seen Deutsche get the majority of its stock picks right -- and its average recommendation beat the market by more than 8 percentage points. A bit of a hit-or-miss investor in the topsy-turvy world of tech investing, Deutsche Bank has nonetheless picked quite a few major winners en route to earning a sterling 94% rating on Motley Fool CAPS:


Deutsche Bank Said:

CAPS says (out of 5 stars possible):

Deutsche Bank's Picks Beating S&P By:




193 points

Western Digital 



205 points




440 points

Obviously, it's that 440-point outperformance on Apple stock in particular -- counting from a recommendation first made back in January 2007 -- that really gets me thinking that Deutsche knows what it's talking about when it tells investors to buy Apple today. But the banker's strong record of making prescient recommendations in key computer parts suppliers SanDisk and Western Digital is also encouraging.

Apple: buy the numbers?
No less encouraging is the valuation of Apple stock, which I have to say looks so attractive as to make Deutsche's recommendation to buy almost a no-brainer. Valued on generally accepted accounting principles-calculated profits, Apple shares sell for just over 13 times earnings -- and at a significant discount to the triple-digit P/Es more commonly found in the tech sphere these days.

What's more important to me than Apple's earnings per se, though, is the quality of these earnings. In a world where companies often report strong GAAP profits, but have much weaker or even negative free cash flow backing them up, Apple is that rare bird that generates more cash than it is permitted to describe as "net income" under GAAP -- $45.1 billion in trailing free cash flow, in fact, versus reported income of only $37 billion.

That 22% differential between free cash flow and GAAP profits coincidentally tallies nicely with the undervaluation Deutsche said it sees in Apple shares. Turns out, a move from today's share price of $530 and change, to Deutsche's projected target price of $650, would be a bit more than 22% itself.

Foolish takeaway
At a price-to-free cash flow ratio of just 10.5, and an enterprise value-to-free cash flow ratio even lower, Apple shares look bargain-priced for analyst projections of 21% annual earnings growth. Today, Deutsche Bank became one of the first Apple skeptics to conclude these shares have become too cheap to not own. I predict it won't be the last.

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Read/Post Comments (4) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 10, 2014, at 2:01 PM, SimchaStein wrote:

    Thanks and adding in support:

    1) Buybacks takes downside risk to near zero, especially long term.

    2) Increasing dividends means investors can wait (hold) forever while the stock goes up.

    3) As the market gets over its current over-rotation to super high growth, Apple will be re-discovered.

  • Report this Comment On April 10, 2014, at 3:59 PM, iphonerulez wrote:

    It definitely seems like I've been waiting forever for the stock to go up while collecting my dividends. Apple did almost nothing in all of 2013 and now 2014 is almost halfway over while Apple simply sits on $160 billion in reserve cash. It makes the company look very lax when it comes to catching up or keeping ahead of its competitors. I still don't have much hope of Apple seeing $600 (especially after days like today) but as long as Apple continues raising its dividend, I'll stay with the stock.

  • Report this Comment On April 13, 2014, at 5:11 AM, Chiam wrote:

    What a nasty call by the bank. They want people to buy now when the stock is heading to 450 according to Dan Nathan. Cramer said it should tank after earnings. It is tanking before earnings. What a joke.

    I believe we are headed down like last year. This time of year there are no catalysts at all. Apple is a fall catalyst and nothing else as it usually misses at least 3 of 4 earnigns calls. Negative growth and declining market shares are killing this company. Nothing new ever except minor upgrades. They are coming out with a bigger screen and people are treating it like they cured cancer. Everyone has one. Where is the innovation. What a total joke.

  • Report this Comment On April 13, 2014, at 5:49 AM, Chiam wrote:

    Tim Cook is spending his time worrying about green energy, Tim Cook is about the supply chain and he is not doing a good job as products are always constrained when they come out during the Xmas season. A bad time not to have enough product.

    He should worry about new products of which he never has any. The lying Cook promised shareholders during last years April call that there would be new things all next year. Software hardware and so many other treats.

    So far nothing but a China Mobile deal that has proved to be a dud. Cook is a dud. he needs to get fired now. When are they going to sack this loser? When the stock is at 385 again? 285? 185? zero? No way. Not after the board members like Al Gore. That man has rhythm. Well I always here them talking about how the key to success is Al Gore rhythm.

    Expect Apple to keep dropping.. Monday Apple should be down 7 of 8 days and keep dropping everyday until earnings. Then we will get a few days of drops and if we overshoot the low 400s then we could get a 10 cent rally before it continues to drop.

    Apple has declining EPS and Sales so expect a 2-3 p/e. Last year we hit 385. Why? What is different this year? Nothing. Last year everyone thought the new phone would change that. Cramer said stock is going to 600 when he saw the new iPads? How about 519?

    Apple is a disaster and we must sell our stock now or short it big time. Until you hear Tim Cook is gone and a new CEO is in place, then you can buy. Cook has to be the most boring guy ever. Does anyone remember Sculley? How bad he was? Who hired him? Who begged him to stop selling sugar water and come change the world? It was Jobs. So Jobs was not great at hiring CEOs. Cook is no exception to the rule.

    With a larger IPhone coming out people are acting like this is the greatest innovation. Apple has no innovation. They have a bigger phone coming just like everyone already has. Last year it was a fingerprint sensor and some colors. The fingerprint sensor has been around a long time. Now Samsung has it and others too. No big deal. Didn't work that well also.

    Tim Cook's favorite movie is Coma. That is telling. He has more money than he ever could spend and he is not a big spender. So why would he be motivated? He is not. He is silly and afraid. He takes forever to do things. he says we need to execute flawlessly but he puts out a maps application that shows half the world hovering over Cleveland. And that is executing flawlessly? How does he have the audacity to say these things/ what Chutzpah.

    Tim Cook is a disease to Apple. The sooner this leper is gone the company can grow again with a better CEO. Cramer would have been better. Apple would have bought NFLX at $100. Apple would be doing things rather than standing still. Employees hate working for the slave driver. They act like they care about the Chinese working so many hours but they make their American employees do the same. They are phone and liars. Cook doesn't care about anyone. It is all an act. The facts don't lie. If I gave work to a company that had people jumping off roofs every minute I would switch suppliers no matter what. I would care more about lives than product. But Cook is a phony.

    Green green green. That is a sham. That is done for marketing purposes. Like he said to shareholders that thought green hurt the bottom like to sell their shares if they don't like what the employee is doing. If my workers said hey if you dont like what i am doing sell the company they would be gone in a minute.. CHUTZPAH!

    Look it up.

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Rich Smith

As a defense writer for The Motley Fool, I focus on defense and aerospace stocks. My job? Every day of the week, I'm monitoring the news, figuring out the winners and losers, and tracking down the promising companies for you to invest in. Follow me on Twitter or Facebook for the most important developments in defense & aerospace, and other great stories.

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