Apple Inc. (AAPL), Hewlett-Packard Company (HPQ): Top CAPS (Investment) Ideas for the Second Half of 2013

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The Motley Fool CAPS is a place where you can test your wits against fellow retail and professional investors. I began playing in the fourth quarter of 2012 and already have a player rating of 96.49 with a score of 1,174.79.

The player rating indicates how you compare against fellow players and the score is a tally of every percentage point where your selection outperforms its benchmark. Personally, I use CAPS as a way to track my own investments for disclosure purposes.

Apple Inc. (NASDAQ:AAPL)

My selections are chosen based on the stock-picking formula found in my book “Taking Charge With Value Investing (McGraw-Hill, 2013).” While I have done great to-date, let’s go ahead and see what moves I am making for the following six months.

Picking up steam into the final six months

Alcatel Lucent SA (ADR) (NYSE:ALU) has posted a gain of 36.9% since adding it to My CAPS — its index has gained 15% — thus creating a score of 21.8 to My CAPS. However, I think the gains are just getting started.

Back on June 2 I wrote an article comparing Alcatel-Lucent (my 2013 Value of the Year) to Sprint Nextel (my 2012 Value of the Year) and so far the comparison is proving true. Alcatel Lucent SA (ADR) (NYSE:ALU) has gotten a late start – with all of its 40%+ YTD gains coming since the end of April – but has a lot going in its favor for the end of the year.

Not only is it the cheapest of any telecom equipment stock, but the company has a massive restructuring program in effect and is operating in an industry that is outperforming expectations. Last month Ciena Corporation (NASDAQ:CIEN) presented quarterly results that were far above expectations, citing increased telecom CAPEX due to mobile/Web traffic. If accurate, Alcatel-Lucent will benefit – making it a good play as the company continues to embark on restructuring initiatives.

Will it finally rise?

I know it lacks originality to choose Apple Inc. (NASDAQ:AAPL), but the stock really is cheap and has a lot going in its favor during the second half of the year. Not only will it release a new update to its operating system, but also is expected to unveil both a new high and low-end model iPhone.

In the process, there is iOS in the car, radio, and possibly iTV in the works. While these are exciting, let’s not forget the company’s massive $60 billion plan to return capital and buyback shares, which should create a floor for the stock. Therefore, at seven times next year’s earnings minus cash, I like its chances to be a top CAPS performer, and add to the 4.88 points that it has created for My CAPS.

Is there light at the end of the tunnel?

Shares of Hewlett-Packard Company (NYSE:HPQ) have rallied almost 75% in 2013. However, I think it could maintain this rate of return throughout the remainder of 2013.

Last quarter HP saw a double-digit rally as it upped its fiscal year 2013 EPS guidance and the company’s CEO Meg Whitman revealed a boost in the PC market. Overall, Whitman has done a fabulous job at Hewlett-Packard Company (NYSE:HPQ). The CEO has focused her attention on cash-flow and has produced fundamental improvements.

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