Apple Inc. (NASDAQ:AAPL) is the top stock pick among the funds we track; that’s no secret. What is up for debate, though, is just how shares of the tech giant will perform in 2013. There are many opinions, and earlier today, we gave the bear’s case, so to speak, from the renowned Doug Kass (see his thoughts here).
On the other side of the aisle, there are a number of bullish scenarios that can push Apple Inc. (NASDAQ:AAPL) higher, but it all starts with the valuation. Recently, Gamco Portfolio Manager Larry Haverty was on Bloomberg TV discussing the stock’s relative attractiveness. Here are some of the highlights:
“It trades at 6 times current cash flow […] that’s a 16% return, and sitting on the sidelines is $121 billion of cash, I think probably at the end of this quarter probably over $130 billion of cash. It’s earning nothing, and if it decides to go from earning nothing to buying the stock at 16%, you increase the shareholder value.”
Regarding Apple Inc. (NASDAQ:AAPL)’s cash flow, we’ve covered this subject quite a bit recently. In case you haven’t read up on just how Apple manages its $121 billion of investable cash, be sure to check out our recent in-depth analysis on the topic (see What is Apple’s Secret Hedge Fund Buying?). Getting back to the point, Apple absolutely has the capacity to boost its dividend, which is projected to yield around 2% based on the current payout.
Here’s a look at how Apple’s stock has performed over the past year:
Keeping this in mind, Haverty had this to say about Apple Inc. (NASDAQ:AAPL):
“I think last year, at the peak, there was probably over $300 billion of unrealized capital gains in Apple, just from the performance in the last year […] there was some thought, you’re now paying 15%, that might go to 45% […] that’s kind of unprecedented in terms of the tax change and the tax magnitude, and I think that has created distortions in the stock, which create the opportunity.”
Haverty also discussed Apple Inc. (NASDAQ:AAPL) “in a vacuum” to make his case; continue reading to see his thoughts…
The portfolio manager broke down his bullish Apple Inc. (NASDAQ:AAPL) thesis into multiple phases, which include:
“One: it’s the world’s best retailer. If you had the ability to get at their retail profitability, it would be better than anyone else on the planet. The second thing is: it gets recurring revenue from the iPhone and the Apps on the iPad. The third thing is: it makes these devices […] it’s not really a consumer durable, it’s a consumer semi-durable.”
Additionally, Haverty mentions the “financial characteristics,” which include stellar margins, high ROI, and “not a lot of capital intensity,” at “half the multiple of Coca-Cola.”
Perhaps most importantly, Haverty discusses the prospects of Apple Inc. (NASDAQ:AAPL)’s decision not to place more of its cash flow into shareholders’ pockets, which he describes as “irresponsible” management. Here are his thoughts:
“The reality is right now, Apple could […] finance in the bond market at 1% and pay the interest and bring the cash over and give it to the shareholders. They could also finance at 1% and buy the stock and get a 16% return […] They’d flunk a finance class in any business school.”
To conclude, Haverty says that “it’s time the directors, I think, changed the playbook in terms of the cash management,” adding that “if they ever did that, I think the stock could be very close to a trillion dollars in value very, very quickly.”
Let us know your thoughts in the comments section below, and for more Apple Inc. (NASDAQ:AAPL) coverage, continue reading here:
The Apple iPad Could Be a Standalone Tech Monster
AT&T Leans on iPhone to Set Holiday Sales Record
One Very Bearish Prediction for Apple
Disclosure: I have no positions in any of the stocks mentioned above
