MarketWatch presented Goldman Sachs' top ten picks for upside potential in 2013 earlier today. It was nice to see two of my core holdings listed as #1 and #2 on the presentation and have two other of my positions in the top ten as well. Here are Goldman Sachs' top three picks for upside potential in 2013 profiled.
#1 - Apple (AAPL) - No surprise here given the low valuation of this once beloved market darling. Goldman Sachs sees the shares climbing to $660 a share in 2013.
4 reasons AAPL is extremely cheap at $458 a share:
- The stock is selling at just 9x forward earnings, a deep discount to its five year average (18.2).
- The company has over $135B in net cash and marketable securities on its balance sheet. This is enough to buy Ford, Nike and Kimberley Clark and still have change left over to put in perspective.
- Apple's growth story is not over. It is expected to grow revenues in the mid-double digits for both FY2013 and FY2014 and the stock sports a minuscule five year projected PEG (.52).
- The company is generating over $40B of cash annually and the stock is selling at the bottom of its five year valuation range based on P/E, P/CF, P/B and P/S.
#2 - Goodyear Tire & Rubber (GT) - Goldman believes the iconic tire maker can appreciate 40% to $19 a share in 2013.
4 reasons GT is undervalued at under $14 a share:
- The stock sells for less than 6x forward earnings, a deep discount to its five year average (14.3).
- The mean price target by the six analysts that cover the stock is just under $17 a share. S&P has a "Buy" rating on the stock.
- The stock is selling in the bottom third of its five year valuation range based on P/E, P/S, P/CF and P/B.
- GT is priced at less than 3x operating cash flow (less than 5x if you include debt).
#3 - Prudential Financial (PRU) - Goldman thinks the insurer could appreciate by a third in 2013.
4 reasons PRU is a bargain at $58 a share:
- The stock sells at 70% of book value and 2x operating cash flow.
- The company has an A rated balance sheet and pays a dividend of 2.8%. Given its low payout ratio (under 25%), I would look for dividends to increase substantially as the credit and housing markets continue to improve.
- The stock is cheap at 7.5x forward earnings. The mean price target held by the 18 analysts that cover the shares is $68 a share. Credit Suisse has an "Outperform" rating on PRU and Deutsche Bank initiated the shares as a "Buy" in January.
- After growing revenues some 20% in FY2012, analysts predict better than 6% sales growth in FY2013. The stock sports a five year projected PEG under 1 (.71) as well.