Senior Vice President and Equity Manager Christopher Montoya of First Financial Trust says Apple Inc. (AAPL) is an example of a stock his firm is looking for going into 2016.
Our strategy going into 2016 is to look for stocks with attractive valuation, near-term catalysts for earnings growth and financial strength to distribute capital to shareholders.
Apple, for example, currently trades at 11.98 times 2016 earnings estimates. They have $205 billion in cash, $141 billion in net cash, which is 21% of the total market cap. And so when you look at estimated earnings minus the net cash, the stock is actually trading at a little under 9.5 times 2016 earnings estimates, which is extremely cheap in comparison to the overall market.
Montoya says Apple sells great products that are very popular, and that the operating margin on those products is 30%.
They’re pretty much a cash-generating machine, whilst the stock currently trades as if they’ll never sell another iPhone. We see growth in wearables like the Apple Watch. There is a potential for a TV streaming service in the future, and then, we still see improvements in their software to strengthen their ecosystem.
So all of this would generate additional cash that enables the company to do research and development, some tuck-in acquisitions and still be able to grow capital distributions for shareholders.
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