Apple (AAPL)

With products that are pervasive and ubiquitous and the #1 ranking in our MANIFEST 40 most widely-followed stocks, it’s time for Apple to join the Solomon Select tracking portfolio. We’ve waited patiently for the stock price to drop from $705 to $400 and the fundamentals are still very much intact. Our anecdotal analysis of price disruptions on the heels of relative strength breakdowns and breaches in momentum suggests that the worst may be over.

On a CNBC appearance yesterday, Jeff Gundlach confessed that DoubleLine is now “long” Apple after rocking the investing world with his expectation of $300-something while it was soaring in the upper $600s 9-10 months ago.

Growth, Profitability, Valuation

The Manifest Investing sales growth forecast for AAPL is 14.2%.

We’re using 23.2% for the projected net margin. Value Line has a 3-5 year projected net margin of 26.6%.

The median P/E for the period 2008-2017 is 15.2×. We’re using 14x for the projected average P/E.

At the time of selection (5/31/2013), the stock price is $449.73, the projected annual return is 20-21%. The quality RANKING is 98 (Excellent) and the financial strength rating is 90 (A+).

The company has historically held no long-term debt but recently committed to low-interest rate bonds as an offset vehicle (tax optimization) to ‘proxy’ a repatriation of offshore cash reserves to fund buybacks and dividends for shareholders.

Points of View

Morningstar has AAPL with a fair value of $600 for a price-to-fair value ratio of 74% and rates the company a “buy.” S&P rates the company a “strong buy” at fair value of $473.20, or a P/FV of 94%.

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