“Even after a 12% gain in the S&P 500 index this year, uncertainty about the fiscal cliff, increased taxes, and still-high unemployment continue to wear down investors. Year to date, domestic equity funds have seen $110 billion in net outflows,” Andrew Bary writes for Barron’s. “The new year could bring more of the same if economic uncertainty fails to lift, making the key question for investors not which way the market is headed in 2013, but which stocks are going to go up.”
Bary writes, “For the third year in a row, Barron’s is taking a crack at that question, with our 10 Favorite Stocks for 2013, including blue-chips like Apple (AAPL), JPMorgan Chase (JPM), Royal Dutch Shell (RDSA), and Novartis (NVS), and smaller companies like Barnes & Noble (BKS) and disk-drive maker Western Digital (WDC), which appear sharply undervalued.”
“Apple is still going strong, even as the company’s shares have traded down 23%, to around $540, from a September peak of $705. None of the recent investor concerns — lower margins, supply constraints, management changes, iPad competition, and the iPhone 5 map fiasco — are major,” Bary writes. “It’s true that Apple’s earnings growth has slowed to a 23% rate from more than 100% a year ago, but that’s understandable, given the company’s $156 billion in annual sales.”
“Veteran UBS tech analyst Steve Milunovich recently wrote that it’s a ‘good time’ to add to positions in Apple before year end, with the stock trading near its lowest price/earnings ratio in five years after two disappointing quarters,” Bary writes. “He carries a price target of $780. Apple trades for only 11 times projected profit of $49 a share in its current fiscal year, ending in September 2013. Strip out Apple’s huge cash holding of $128 a share, and the effective P/E is just eight.”
Bary writes,” Even after implementing a dividend — now providing a 1.9% yield — and a modest buyback program, Apple should build cash at a rate of $40 billion annually. There’s room for a higher dividend and a more aggressive share-repurchase program in 2013. Both could play well with investors.”
Full article here.