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Wednesday, February 27, 2013

PLA 'sinks' US carrier in DF-21D missile test in Gobi|Politics|News|WantChinaTimes.com




PLA 'sinks' US carrier in DF-21D missile test in Gobi|Politics|News|WantChinaTimes.com



PLA 'sinks' US carrier in DF-21D missile test in Gobi

  • Staff Reporter
  •  
  • 2013-01-23
  •  
  • 16:54 (GMT+8)
Hit! According to the satellite image, China has sunk your battleship. (Internet photo)
Hit! According to the satellite image, China has sunk your battleship. (Internet photo)
The People's Liberation Army has successfully sunk a US aircraft carrier, according to a satellite photo provided by Google Earth, reports our sister paper Want Daily — though the strike was a war game, the carrier a mock-up platform and the "sinking" occurred on dry land in a remote part of western China.
A satellite image reveals two large craters on a 200-meter-long white platformin the Gobi desert used to simulate the flight deck of an aircraft carrier. The photo was first posted on SAORBATS, an internet forum based in Argentina. Military analysts believed the craters would have been created by China's DF-21D anti-ship missile, dubbed the "carrier killer."
While claiming that the missile has the capability to hit aircraft carriers 2,000 kilometers away, the nationalistic Chinese tabloid Global Times stated that the weapon was only designed for self-defense; the DF-21D will never pose a serious threat to US national security because it is not even able to reach Hawaii, the newspaper said, though fully aware of the US naval deployment in the Western Pacific.
Underlining this point, Global Times took a common line from China's national defense doctrine before the country acquired an aircraft carrier of its own — namely that carriers are an offensive weapon while anti-ship missiles are defensive. "It can be used like a stick to hit the dog intruding on our backyard, but it can never be used to attack the house where the dog comes from," the paper's commentary said.

The 25 Best Companies in America



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The 25 Best Companies in America

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Tuesday, February 19, 2013

Pick A Healthy Triple-Net REIT And Don't Buy This Lemon - Seeking Alpha

Pick A Healthy Triple-Net REIT And Don't Buy This Lemon - Seeking Alpha


Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More...)
One of the good things about REITs today is that the broader market is making it increasingly easier to diversify. With a wave of IPOs forming and new REITs listing shares, the number of publicly-listed REIT options is blooming into a wide array of appetizing - and some not so appetizing - selections.
Currently there are 129 U.S. equity REITs with a combined market capitalization of around $561 billion and there are 28 U.S. mortgage REITs with a combined market capitalization of around $65 billion. I have written about several proposed new REIT listings lately including Iron Mountain(IRM), Lamar Advertising (LAMR), Empire State Realty Trust, and Penn National Gaming (PENN).
Last week I wrote a Forbes.com article on the Empire State Realty Trust and in a Q&A interview Anthony Malkin, President and CEO of Malkin Holdings, explained his company's value proposition for listing shares of the 19 property portfolio (the first NYC area REIT listing in over 16 years).
This unlocks investors from an archaic investment structure while giving them several good options and benefits, including the chance to trade into a portfolio of trophy pre-war, Manhattan-area assets on a 100% tax-deferred basis… these are benefits that they do not have now. By allowing investors to hold interests listed on the New York Stock exchange, this transaction offers a new found path to liquidity, so an investor can sell at an efficient market price. All sales to date have been at what we think are tremendous illiquidity discounts to value.
The demand for broader diversification is warranted and over the last few weeks several companies have made it to the full-liquidity finish line. These new publicly-listed REITs include Gladstone Land Corporation (LAND),CyrusOne Inc. (CONE) - see Lou Basenese's article hereSilver Bay Realty Trust (SBY) - see Regarded Solution's article here; and Spirit Realty Capital (SRC) - see my article here. In addition, I have written on several REITs that listed shares last year including AmREIT (AMRE) andWheelerREIT (WHLR).
(click to enlarge)
Triple-Net REITs Should Be a Primary Food Group
Last week I wrote an article on diversification and in the article I explained that by "filtering a diverse landscape of REITs" and by using a "rigorous 'margin of safety' application" an investor could "achieve the most favorable results". As I explained:
My portfolio was designed for modest diversification (like Buffett) and I have over-weighted the REIT sectors with a highly defensive concentration of triple-net REITs. As most of you know, I am a bullish proponent of the stand-alone asset sector as I believe the sustainability fundamentals (i.e. contractually long-term leases) provide for an attractively well-balanced value proposition: stable dividends and moderate growth.
In my portfolio that returned 37.51% (and also beat the other mutual funds and ETFs), I included 6 out of 12 triple-net REITs. The reason for this over-weighted triple-net diversification strategy was simply the fact that I was aiming for a highly defensive composition that could deliver sustainable dividend performance. Unlike the variety of volatile mortgage REITs - likeAnnaly Capital (NLY), Armour Residential (ARR), or Chimera Investment Corp. (CIM) - I wanted to demonstrate that my portfolio could outperform the more diverse funds simply by reducing volatility and focusing on safer dividend-weighted total return metrics.
So many investors today are chasing yield and simply missing the most important goal of "sleeping well at night". Warren Buffett seems to think that modest diversification combined with consistency makes for a more sustainable investment model:
If you aren't willing to own a stock for ten years, don't even think about owning it for ten minutes. Put together a portfolio of companies whose aggregate earnings march upward over the years, and so also will the portfolio's market value.
Picking a Healthy Triple-Net Alternative
Last week Realty Income (Oannounced its fourth quarter (2012) performance and, as suspected, the "monthly dividend company" finished the year with very successful financial results.
Funds From Operations (or FFO) available to common shareholders was $71.6 million, or 54 cents per share, compared to $68.1 million, or 51 cents per share during the fourth quarter of 2011. Adjusted Funds From Operations (or AFFO) totaled $72.9 million, or 55 cents per share, compared to $68.5 million, or 52 cents per share, in the prior-year period, marking increases of 6.4% and 5.8% on aggregate and per-share bases, respectively.
For the year, Realty Income's FFO totaled $260.9 million, or $1.96 per share, compared to $249.4 million, or $1.98 per share, in 2011. The company attributed the per-share decrease to a $3.7 million noncash redemption charge on the redemption of class D preferred shares in March 2012 and $7.9 million of merger-related costs. FFO totaled $1.99 per share excluding the redemption charge.
For the full year 2012, Realty Income purchased $1.6 billion in properties comprised of 423 stand-alone assets. That is another milestone for the company as it is the largest growth recorded in any calendar year, surpassing the company's previous record of $1.02 billion in 2011 (The full year acquisitions were done at an average cap rate of 7.22% with a weighted average lease term of just over 14.5 years).
(click to enlarge)
Another triple-net REIT, American Realty Capital Properties (ARCP), is quickly becoming a valuable SWAN (sleep well at night) alternative for investors. The company listed shares on NASDAQ on September 7, 2011 and since that time the New York-based REIT has delivered "nothing but net". I recommended (in an article) ARCP on June 15, 2012 and since that time the small-cap REIT has returned over 46%.
(click to enlarge)
Last week ARCP announced that it was getting closer to its goal of merging with a related non-traded REIT, American Realty Capital Trust III. In a press release, ARCP said that the proposed merger is expected to close earlier than previously expected, in the first week of March (2013).
As a result of the early closure, American Realty Capital Trust III stockholders will receive an increased distribution. As explained in the press release:
Following a vote by the stockholders of both companies at the special meeting scheduled for Feb. 26 in favor of the merger, American Realty Capital Trust III stockholders who elect to receive common stock in American Realty Capital Properties will receive an increase of 20 cents per share to their current annualized distribution, reflecting an annualized rate of 86 cents per share, beginning with the March distribution.
Pursuant to the terms of the merger, each outstanding share of common stock of American Realty Capital Trust III will be converted into a right to receive either 0.95 of a share of common stock of American Realty Capital Properties or $12.00 in cash, but in no event will the aggregate consideration paid in cash be paid on more than 30% of the shares of American Realty Capital Trust III's common stock issued and outstanding immediately prior to the closing of the merger.
Also announced last week, American Realty Capital Trust III has signed an $875 million credit facility, which can be increased to $1.0 billion. The credit facility includes a $525 million term loan facility and a $350 million revolving credit facility. Loans under the facility will be priced at their applicable rate plus 160 basis points to 220 basis points.
At the completion of the merger, ARCP will have access to the credit facility along with its current financing, giving the combined entity access to up to $1.2 billion. The combined annual revenue will be around $180 million with an equity market cap of around $1.894 billion. That translates into a conservative net debt to enterprise value of 40.9%.
I like the merger and I explained the value proposition in a recent article:
ARCP is no longer a "Mickey Mouse" REIT and the discipline of the experienced management team will determine the company's destiny: to become a durable sleep well at night REIT. The growing high-quality tenant composition and continued revenue diversification will have an enduring impact that should allow the triple-net REIT to replicate the success of the stalwart peer group (O, NNN, and WPC).
Don't Eat Too Much Junk Food
Remember, just because a company is considered a defensive triple-net REIT does not guarantee it success. Back in September I wrote an article onSpirit Realty's IPO:
Spirit spooks me and that is why it is important to compare cost of capital and consider investing in established companies - a proposition that delivers safety in principal and repeatable dividend performance. These higher quality REITs (like Realty Income, National Retail Properties, and W.P. Carey) are proven fixed-income alternatives and accordingly enjoy sustainably robust dividend yields.
And now, and after the recently announced merger with Cole Credit Property Trust II (CCPT II), I don't see the value in the triple-net marriage. As I wrote:
CCPT II was looking hard for love since "many of the non-traded REITs like CCPT II have become "long in the tooth" as they have not been able to exit the market due to the baked-in costs (fees) and cap rates that are seemingly "under water…
In reviewing the CCPT II portfolio, it is clear that many of the properties in the portfolio are non-investment grade and due to the size of the portfolio it could be difficult for one buyer to stomach the broad composition of credits, especially since the valuations are likely to be nowhere close to the recent valuations driving O/ARCT and ARCP/ARCT III.
Simply said, the proposed merger with Spirit Realty and Cole Credit Property Trust II is going down for ALL OF THE WRONG REASONS. True, Spirit needs to add high-quality assets to its highly-concentrated sub-prime portfolio; however, I don't feel like there is value in merging Spirit's toxic net lease portfolio with the highly-leveraged Cole Credit Property Trust II portfolio.
Remember REIT gamersNon-Traded REITs make money when they BUY assets. Cole Credit Property Trust II was built on the backs of retail investors and therefore CCPTII's management team is incentivized to acquire larger deals using leverage. CCPTII has around $3.43 billion in assets (2% acquisition fee = $68 million) and the debt load is around $1.768 billion. In other words, Spirit is merging its low quality portfolio with CCPTII's highly-leveraged "diversified" portfolio (debt to gross assets is 50.31%).
It's no secret that non-traded REITs raise equity by charging fees (load) and in the case of CCPTII the fees amounted to around 9% or $144 million. Add the acquisition fees and that is over $200 million.
Comparatively speaking, ARCTIII's non-traded REIT portfolio has assets of $1.654 billion and total debt of $157 million. In addition, ARCTIII and ARCP's combined portfolio will include 77% of tenants that are investment grade rated. (ARCTIII's debt to gross assets is 16.58%). ARCTIII collected acquisition fees of 1% or around $16.5 million.
Recently Stifel Nicolaus & Co. analyst Joshua A. Barber downgraded his investment opinion of Spirit to "hold" from "buy" (source: SNL Financial):
We had previously viewed SRC shares as the value play in the triple-net sector, and after the recent run-up, we think further appreciation would require SRC shares to trade like higher-quality triple-net peers, which we think is unlikely even after the merger given the still-higher leverage and tighter dividend coverage. The deal solves several of Spirit's pressing issues. First, top 10 tenant concentration drops from 52% to 37%, and Shopko exposure (still the largest tenant) falls from ~30% to a more manageable ~16%. Investment grade tenants now make up 19% of rents from essentially nothing.
Check Under the Hood So You Don't Buy a Lemon
I'm sure you've heard the saying:
When life gives you lemons, make lemonade.
Well, that's not necessarily true. I mean, life does not have to give you lemons. If you conduct ample due diligence before buying you are likely to enjoy the fruits of your labor, instead of lemons. In the case of the proposed merger with Spirit Realty and CCPTII it is clear to see that the combination is simple one big lemon.
Remember that Mr. Market does not know the difference between a lemon and lemonade. Conversely, investors should make sure to carefully examine the safety of the income stream and determine whether "an investment operation is one which, upon thorough analysis, promises safety of principal and satisfactory return".
(click to enlarge)
In my view, the Spirit/CCPTII operation does not meet these requirements and is therefore highly speculative. Therefore, I believe that Spirit shares involve considerable peril - at any price. There are too many other triple-net REITs that provide more stability and consistency. Don't let your enthusiasm for Spirit become your next "silly willy" dance. As Ben Graham explained (in 1949):
Imagine that in some private business you own a small share that cost you $1,000. One of your partners, named Mr. Market, is very obliging indeed. Every day he tells you what he thinks your interest is worth and furthermore offers either to buy you out or to sell you an additional interest on that basis. Sometimes his idea of value appears plausible and justified by business developments and prospects as you know them. Often, on the other hand, Mr. Market lets his enthusiasm or his fears run away with him, and the value he proposes seems to you little short of silly.
(click to enlarge)

Apple: Keep The Faith


Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More...)
Introduction
Apple (AAPL) has the whole investment community jumping up and down over whether or not the company is even a viable investment anymore. Some complain about the sheer size of the company, others blame competitive factors; some are busy fiddling with whether or not Apple is a festering black swan event. Traders on the floor are busy shouting about the technical chart-set ups without a modicum of interest in the fundamentals of the stock. While pure fundamentalist continue to reiterate the growth of the stock, the strong balance sheet, and the future potential of the company. Everyone is arriving at their own conclusion with regards to Apple, and how it should be traded. I on the other hand believe that Apple is a compelling investment that investors should stay invested in. Apple will add hundreds of billions in market capitalization over the next five years.
Qualitative Analysis
Source: Information pertaining to Apple came from the shareholder annual reportwith additional information from the Apple quarterly report,YCharts
There are three limiting factors that are keeping Apple's stock price from showing substantial improvement.
  • Management
  • Fund Inflows
  • Cash on the balance sheet
One of the mains reasons investors are not bidding the value of the company up is that investors are really concerned over whether or not Tim Cook is capable of identifying and executing on golden business opportunities. What is worrisome is that his predecessor (Steve Jobs) did a phenomenal job of this, the company only experienced periods of rapid growth when Steve Jobs was operating the business as the CEO. Leadership is a very valid concern and I really have to disagree with Ashraf Eassa:
It is important for investors to stop blaming Tim Cook for not doing what needs to be done. He's doing exactly what he needs to in order to keep the company performing as well as it can, given the market environment.
Tim Cook has to do a much better job. Major mistakes have been made under Tim's leadership, such as: issuing dividends, falling short with theApple iPhone 5 roll out, new product release schedules falling behind the competition. The innovation is also taking a hit, Apple's "revolutionary product" was a miniaturized version of the iPad, while I believe the Apple iPad mini will be sold, I also believe that the product fell short of the master stroke.
The negativity I have towards the management does not mean I have a vote of no confidence for the management. It just means that Apple could have been commanding a much higher market valuation if Steve Jobs were still alive and operating the company. In 2008 - 2010 the company had a P/E multiple of 18.28 - 18.69. All the detail surrounding Steve Jobs and his sickness were completely shrouded in mystery, and then all of a sudden details started to emerge. Generally, investors are unwilling to pay for a less-skilled, less-capable leader which is contributing to a 10.4 P/E multiple. The P/E multiple declined by 44% between when Steve Jobs was leading the company and the current CEO, Tim Cook. Furthermore, an 18 P/E multiple is a reasonable market valuation for a stock that has been growing earnings by 71.66% per year over the past five years.
Tim by himself is not the most amazing leader on planet earth, let's be brutally honest he does not conjure up images of Alexander the Great, Napoleon, or King Solomon. Just because Tim is not as good as Steve Jobs, it does not necessarily mean that Tim's leadership is only worth a 10.4 multiple over earnings. Tim has been with Apple for 15 years, so the company is not being entrusted to someone who does not understand the company. What it does mean though, is a lowered set of expectations for the company going forward. Analysts on a consensus basis anticipate Apple to grow its earnings by 18.98% over the next 5 years, with the company having been able to grow earnings by 71.66% over the past 5-years one may wonder if expectations are a little too low on this company. I think that if Tim Cook is able to exploit small yet realistic growth opportunities in foreign markets, while continuing to improve the Apple product platform, investors could still net a very reasonable amount of growth in earnings that could outpace analyst expectations. The devotion customers have to the Apple brand is unprecedented; it makes the Tulip mania look like a joke. So yes, we're working with a very predictable, lovable, and cheerful customer base. Apple investors have the best customers any company on planet earth could honestly ask for, and Tim Cook will not mess that up.
Some of the issues surrounding the market valuation is more macro and is beyond the control of Apple and its management.
(click to enlarge)
Source: Chart and data from World Bank
The United States has been able to decrease its negative account balance from -5% to -3% between 2003 and 2011. This is important because the account balance of the United States measures the amount of cash inflows and outflows (difference between imports and exports). The more cash that is being out-flown the less savings available to invest into investment securities like Apple. Since Apple is a really large company in terms of market capitalization ($432.1 billion), the amount of savings available to invest into stocks becomes a contributing factor as to whether or not the stock can fetch a more reasonable market valuation. This can further explain the reason for why the stock has a price to earnings growth ratio of 0.6. It is not that investors do not understand the future potential of the stock, but that there is not enough savings within the United States economy to further support the valuation of the stock. This does not mean that Apple is a bubble, what it means is that there must be more savings in the United States economy in order for the stock to trade at a higher valuation. In the account balance chart, the linear line had an upward slope, meaning that account balances are improving in the United States. This is a positive for Apple because there will be even more savings within the United States, and with improved savings leads to further fund inflows. More fund inflows means more investors investing their hard earned cash into Apple. Apple's stock value is directly tied to the amount of savings in the United States economy, so it is a reasonable assumption that if saving improve, Apple's stock value will also improve.
(click to enlarge)Many fundamentalists would argue that the above figure is a great chart. The only problem with the cash coming in from operations is that Apple invests the cash into low-risk, low-yield treasury bonds. This type of investment behavior is unacceptable especially because the cash from operations will drastically increase in subsequent years. Anyone who receives a dividend from Apple can go and buy a treasury bond, this does not take skill nor rocket science. Apple currently generates enough cash from operations that it can buy-out a $50 billion company every single year. Almost every large/mega-cap stock on the stock market could generate higher yields than a treasury bill. In fact, Apple might as well buy-out Berkshire Hathaway, and then allow Warren Buffet and Charlie Munger to manage all of Apple's cash from operations. That last sentence was a joke, but if Warren Buffet were to manage the cash balance on Apple's cash flow statement, the stock would literally climb double digits overnight.
The point I am really trying to make is that Apple with its humongous cash balance on its balance sheet could end up doing an amazing job of investing its capital. This is how Apple invests its cash, according to Apple's annual report:
The Company's marketable securities investment portfolio is invested primarily in highly-rated securities and its investment policy generally limits the amount of credit exposure to any one issuer. The policy requires investments generally to be investment grade with the objective of minimizing the potential risk of principal loss. As of September 29, 2012 and September 24, 2011, $82.6 billion and $54.3 billion, respectively, of the Company's cash, cash equivalents and marketable securities were held by foreign subsidiaries and are generally based in U.S. dollar-denominated holdings.
Apple's investment activities could generate substantial yields. Apple will report its assets at mark-to-market value; this was regulation that was imposed in order to improve liquidity by the FASB (Financial Accounting Standards Board) in 2009. By imposing this standard, Apple is able to speculate on the value of securities, and is able to record the paper gains without fully realizing them.
(click to enlarge)
If I were a consultant, providing advice to Apple on what type of levered or non-levered buy-out it should proceed with. I would set three criteria. First it must have scale (no point in buying out a $300 million company and expecting a significant move in the stock). Second it must have high net-profit margins or potential for high profit margins. Third there must be limited conflict with the businesses operations. Google's (GOOG) buy-out of Motorola Mobility met my criteria of a good buy-out. This also presented a strong case for why investors should remain confident in Google's ability to use its end of period cash balance. In fact, after the Motorola buy-out, Google's stock has trended higher (based on the chart below).
(click to enlarge)
Source: Chart from freestockcharts.com
What this means is that Apple could potentially change investor sentiment by doing what Google did. A major buy-out of another company that strategically adds to Apple but also has a significant impact on Apple's cash balance. If Apple met that criteria it could have a drastically positive effect on the price of the stock and the sentiment around the company.
I remain highly confident in Apple. The company's operation generates a substantial amount of cash flow. Management is competent and will sustain a reasonable rate of growth for investors. In fact it is likely that Apple's management could surprise analyst expectations leading to sudden surges in valuation. Furthermore, Apple could productively use its cash by doing a high profile buy-out worth tens of billions of dollars, this way investors can at least anticipate an avenue of added growth. Apple's current investment activities could add substantially to Apple's net-income in future years. Not to mention the United States account balance is in an up-trend meaning that investment inflows will increase, adding further support to the price of Apple's stock in subsequent years. These factors combined makes me optimistic on Apple.
Technical Analysis
Many technical traders have been providing a lot of commentary on the head and shoulder formation. I don't think that just because the stock fell below $500 it will stay there for a pro-longed period of time. I believe that investors will eventually realize that there's an arbitrage opportunity between the intrinsic value of the stock and the actual price of the stock. The stock is likely to recover from its recent sell off from $700 per share.
(click to enlarge)
Source: Chart from freestockcharts.com
The stock is trading above the 200-Day Moving Average while trading below the 20-, 50-Day Moving Average. The stock is in a confirmed down-trend (lower highs, lower lows). This down-trend will not sustain itself for long because the underlying intrinsic measures indicate otherwise. Over the short-term the stock may experience further declines, but over the long-term Apple stock will re-coup all of its losses and trade at new all-time highs based on the price forecast (later in the report).
Notable support is $325, $375, and $440 per share. Notable resistance is $500, $550, and $700 per share.
Street Assessment
Analysts on a consensus basis have high expectations for the company going forward.
Growth Est
AAPL
Industry
Sector
S&P 500
Current Qtr.
-16.70%
-10.90%
N/A
11.20%
Next Qtr.
5.00%
5.50%
1005.90%
17.30%
This Year
1.40%
4.20%
39.50%
9.50%
Next Year
13.70%
12.40%
21.50%
12.50%
Past 5 Years (per annum)
71.66%
N/A
N/A
N/A
Next 5 Years (per annum)
18.98%
13.05%
17.54%
8.71%
Price/Earnings (avg. for comparison categories)
10.43
28.41
9.42
15.88
PEG Ratio (avg. for comparison categories)
0.55
1.74
1.58
2.09
Source: Table and data from Yahoo Finance
Analysts on a consensus basis have a 5-year average growth rate forecast of 18.98% (based on the above table).
Earnings History
12-Mar
12-Jun
12-Sep
12-Dec
EPS Est
10.04
10.37
8.75
13.47
EPS Actual
12.3
9.32
8.67
13.81
Difference
2.26
-1.05
-0.08
0.34
Surprise %
22.50%
-10.10%
-0.90%
2.50%
Source: Table and data from Yahoo Finance
The average surprise percentage is 3.5% above analyst forecasted earnings over the past four quarters (based on the above table).
Forecast and History
Year
Basic EPS
P/E Multiple
2003
$ 0.10
105
2004
$ 0.36
51.03
2005
$ 1.64
31.97
2006
$ 2.36
30.48
2007
$ 4.04
36.17
2008
$ 6.94
18.28
2009
$ 9.22
19.65
2010
$ 15.41
18.69
2011
$ 28.05
14.2
2012
$ 44.64
15.31
Source: Table created by Alex Cho, data from YCharts, and price history is from Yahoo Finance.
The EPS figure shows that throughout the 2003- 2012 period, the company was able to grow earnings.
(click to enlarge)
Source: Table created by Alex Cho, data from YCharts.
By observing the chart we can conclude that the business has a unique business model because it is able to grow earnings even through economic recessions. I also believe that so as long as the United States account balances continues to improve, the company will generate reasonable returns over a 5-year time span based on the forecast below.
(click to enlarge)
Source: Forecast and table by Alex Cho.
By 2018 I anticipate the company to generate $104.26 in earnings per share. This is because of cost management, potential buy-outs, investment activities, growth in foreign markets, improving economic outlook, and its unique product offering.
The forecast is proprietary, and below is a non-linear chart indicating the price of the stock over the next 5-years.
(click to enlarge)
Source: Forecast and chart by Alex Cho.
Below is a price chart incorporating the past 10 years and the next 6 years. Detailing 16 years in pricing based on my forecast and price history on September 24th of each year.
(click to enlarge)
Source: Forecast and chart created by Alex Cho, data from YCharts, and price history is from Yahoo Finance.
Investment Strategy
AAPL currently trades at $460.16. I have a price forecast of $774.62 for December 31st 2013. I believe that the stock is heavily under-valued over the short-term. Therefore investors should anticipate sudden surges in valuation.
Short Term
Over the next twenty-four months, the stock is likely to appreciate from $460.16 to $774.62 per share. This implies 68% upside from current levels. The stock is in an up-trend, which further supports my investment thesis.
Investors should buy Apple at $460.16 and sell at $774.62 in order to pocket short-term gains of 68% between 2013 and 2014.
Long Term
The company is a decent investment for the long-term. I anticipate AAPL to deliver upon the price and earnings forecast despite the risk factors (competition, economic environment, going concern). AAPL's primary upside catalyst is improving economics, international growth, investing activities, and potential buy-out opportunities. I also disregard much of the over-blown pessimism surrounding the stock. I anticipate the company to deliver upon my forecasted price target of $1,804.83 by 2018. This implies a return of 292% by 2018. This is an exceptional return on investment for a computer hardware company.
A higher yielding investment opportunity albeit having higher risk is to buy the Jan 17, 2015 calls at the $470.00 strike. The call premiums trade at $67.90. The price forecast for the end of 2014 is $880.91. The rate of return if the calls expire at $880.91 is 505%, the option will break-even when the stock trades at $537.90.
The risk to reward ratio on the option strategy is phenomenal. The high-returns come with moderate risk (5-year beta of 1.0).
Apple has a market capitalization of $432.1 billion; the added liquidity makes this an investment opportunity appropriate for larger institutions that require added liquidity.
Conclusion
The party is not over in Cupertino California. Apple will thrive, even without Steve Jobs. Apple and its employees embody Steve's spirit and that in of itself is what will keep Apple on the right path for many years to come.
The conclusion remains simple: buy Apple.