Apple Inc. (NASDAQ:AAPL)
If you’re typically buying stocks based on their valuation, Apple Inc. (NASDAQ:AAPL)’s an excellent choice. As I outlined in another article, I believe Apple shares are trading at a 34% discount to fair value. Though the sentiment surrounding Apple Inc. (NASDAQ:AAPL) stock has mostly been negative, the company is still extremely profitable, with a free cash flow-to-sales ratio of 26% — unmatched in consumer electronics. Furthermore, Apple is still scoring big with consumers in customer satisfaction ratings.
If you’re buying stocks looking for good dividends, Apple Inc. (NASDAQ:AAPL)’s a great choice, too. In fact, I’d argue that Apple is one of the best dividend stocks in the stock market. Not only is Apple a certified cash cow with its impressive free cash flow-to-sales ratio, but its dividend yield today also amounts to a nice 2.7% and the company is paying out only 19% of earnings, leaving enormous room for dividend increases in the future. Of course, I can’t leave out Apple Inc. (NASDAQ:AAPL)’s massive cash hoard that accounts for about 36% of its share price.
Netflix, Inc. (NASDAQ:NFLX)
Netflix, Inc. (NASDAQ:NFLX) definitely isn’t a value stock or a dividend stock. In fact, it’s quite the opposite. Netflix is as growth as growth stocks come.
But how do you value a growth stock like Netflix, Inc. (NASDAQ:NFLX)? You don’t. I’m sure that sounds pretty outrageous to many hardcore value investors, but there’s a time when valuation metrics are of little use — when you’re dealing with a true disruptor.
So how do you deal with companies like Netflix, Inc. (NASDAQ:NFLX) that are changing everything we know about how we watch TV shows and movies? As Fool contributor and Netflix bull Tim Beyers has explained on several occasions, you need to look at the company’s addressable market.
Currently, Netflix has 36 million members. That’s a lot, right? Not really. According to a report from ABI Research, there are about 900 million pay-TV subscribers worldwide. Narrowing that figure down to a market that’s closer to home for Netflix, Time Warner Inc (NYSE:TWX)‘s HBO alone has 114 million subscribers, more than three times that of Netflix.
In other words, Netflix, Inc. (NASDAQ:NFLX) has plenty of room to run — and that’s a great thing for shareholders willing to hold for the long haul.
Contrarianism
Buying stocks like these two will require you to swim upstream, something many investors refuse to do. Apple Inc. (NASDAQ:AAPL)’s stock has largely gone nowhere since Steve Jobs passed, and Netflix, Inc. (NASDAQ:NFLX) is heavily shorted and is overvalued in terms of valuation metrics. So if you’re brave enough, dive in — but don’t expect to get cheered on.
The article Buying Stocks? Here Are My Top Picks originally appeared on Fool.com and is written by Daniel Sparks.
Fool contributor Daniel Sparks has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Apple and Netflix.
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