4 Ways to Profit When Apple Hits $725
It's no surprise that the Cupertino, Calif.-based firm gets as much attention as it does. As the biggest company in the world, nearly everyone owns Apple, either directly or indirectly. According to data from Morningstar, around 84% of large-growth mutual funds own shares of the tech behemoth, and so do countless hedge fund managers and retail investors. Admittedly, Apple is a crowded trade.
But the trade is crowded for a reason: Apple's current $564 price is a bargain. >>Also see : 5 Blue-Chip Stocks to Avoid
Today, I want to show you four ways that you can profit from $725 Apple -- including a few that everyone isn't piling into right now.
We'll start at the source, Apple itself.
For starters, Apple is flush with cash. At last count, the firm's balance sheet held more than $110 billion in cash and investments, a huge load of money that the firm frankly doesn't have use for. But for analysts, that massive cash load is a godsend; it makes valuing a huge firm like Apple a whole lot easier. So, what impact does Apple's cash reserve have on its value?
Well, it means that a full 21% of Apple's mammoth $527 billion market cap is made up of cold hard cash. Adjusting metrics like price-to-earnings ratio that cash stash provides some telling stats -- with cash taken out of Apple's price-to-earnings calculation, the firm is only trading for 10.8 times earnings in the trailing 12 months, hardly the sort of multiple you'd expect to see from a firm that's growing at Apple's pace. Multiplying those earnings by the sorts of (still sub-20) P/Es seen at other tech industry growth stories yields a target price closer to $725 right now.
And that cash is even more significant now that Apple has announced a dividend payout and a large-scale share buyback program; the moves will actually start returning value directly to shareholders in 2012.
That's not going to shake the discount out of Apple's shares immediately -- there are still a couple of factors that are scaring investors away from shares of this firm.
The first is Apple's earnings growth capacity. I mean, how much more could Apple grow at this point? But to folks who've been watching Apple for a while now, that should sound like a familiar challenge to Apple's earnings power.
Historically, the firm has been prescient at transforming its business just enough to capture major trends in the technology world. Even without Steve Jobs at the helm, some impressive products are coming out of Cupertino right now.