My third pick is Apple Inc. (NASDAQ:AAPL)
Apple, according to it’s share price, appears to have fallen on hard times. After peaking at just over $700, the stock has declined some 35% in recent months. Yet, the question I would ask is have Apple’s earning declined by 35% or did gullible investors just get caught up in the hype and believe that Apple would continuously grow large quarterly earnings forever?
Will Apple continue to dominate the smartphone/tablet market? Probably.
Will Apple produce reasonable earnings growth? Probably
Will Apple be able to expand its product range and continue to innovate? Probably
Will Apple grow its earnings by 28% per year forever? Doubt it.
Does Apple on a PE of 10 represent a great buy? Likely
Apple at a PE of 10 represents a good long-term value buy. Forget about making 100% in a single year because “a stock is hot.” That’s what gullible people do. Focus on buying companies that have reliable earnings that are under-appreciated by the market, but that will actually do well over time.
Apple looks like an excellent company. It has great products, adored by a large base of loyal fans. It appeals to both the personal consumer as well as the corporate user. It’s very managed, with an impressive 38% return on equity. Dividends are paid from just a fraction of earnings. The company has no debt, a mountain of cash it can deploy into R&D or an exciting acquisition, and oodles of free cash flow.
Apple is an excellent company by any measure. I feel investors could do nicely with Apple because people still view it as what was a ‘hot growth’ company. If you were to buy Apple as a value play and hold it for the long term, it would provide you with a consistent, steady return.
That’s the name of the game – steady returns that are allowed to compound over time – not looking for the fast buck from a stock that just touched a Bollinger Band, or where the stochastic is now looking fantastic.
Buy good companies with strong, quality earnings at reasonable prices and you will likely outperform all the experts, who are constantly trading in and out of markets because they believe they’re smarter than everyone else!
The article Companies That Print Money! originally appeared on Fool.com and is written by Jarrod Bailey.
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