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One Analyst Gets Bullish on Apple Inc. (AAPL)

As far as valuation goes, however, Apple Inc. (NASDAQ:AAPL) and McDonald’s Corporation (NYSE:MCD) are as different as night and day.

Valuation Metric Apple McDonald’s
Free cash flow growth rate assumed by the market 1.4% 17.4%
Price/free cash flow 8.9 25.5
Price/forward earnings 9 15.6

Why is McDonald’s stock so much more expensive than Apple’s? Chances are it’s because the market is confident in McDonald’s cash flow going forward. Apple, on the other hand, may leave investors nervous. Investors are asking tough questions: Can the company sustain its meteoric levels of free cash flow? How much further will the company’s margins continue to fall?

But is Apple truly deserving of a valuation so inferior to McDonald’s? The company’s conservative valuation levels the playing field, making the stock’s risk/reward profile a convincing value proposition. The market’s serious concerns are arguably already priced into the stock.

The price for Apple Inc. (NASDAQ:AAPL) stock is awfully cheap. Does this mean the stock is going to immediately appreciate? No. But if there is an undervalued company in the S&P 500 that looks likely to earn investors solid returns over the long haul, Apple definitely fits the bill.

The article 1 Analyst Gets Bullish on Apple originally appeared on and is written by Daniel Sparks.

Fool contributor Daniel Sparks has no position in any stocks mentioned. The Motley Fool recommends Apple and McDonald’s. The Motley Fool owns shares of Apple and McDonald’s.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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