Apple's Stock As A Safe Haven And A Possible 2 Bagger Over Next 2 Years

| About: Apple Inc. (AAPL)

Apple (NASDAQ:AAPL) is back at the $500 mark and so far is holding. One question many market participants have is how high it can go and if it is worth buying at current levels, or adding to one's position. Let's look at Apple's valuation metrics.

Apple today is trading at a P/E of 13, which is a very modest multiple for such a high quality stock. The average 12 months forward price target for Apple is $577, which means about a 10% upside.

However, please keep in mind that Apple's stock could easily have traded for a 20 multiple or a $700 price tag, and still be considered a down to earth valuation.

Apple currently has about $150 billion in liquid assets. Over the past four quarters, Apple has produced about $44 billion in free cash flow.

AAPL Free Cash Flow Chart
(Click to enlarge)

AAPL Free Cash Flow data by YCharts

Even if Apple does not repeat this achievement over the next twelve months (and honestly I don't see why it will not), chances are that over the next 24 months or so, Apple will have at least $200 billion in cash, not counting for any stock repurchases. So if nothing dramatically happens to Apple, about 42% of Apple's market cap will be comprised of cash at some point in time over the next 24 months.

Apple wild cards

The much anticipated iWatch is certain to be rolled out at some point in the near future. While the iWatch will not be an iPhone type of a success story, it will nevertheless add revenue and earnings to Apple.

China will prove to be the main growth driver for Apple in 2014. Japan is already a star market for the company, with revenue growth up 41% y-o-y and 31% on a sequential basis as per Apple's latest quarter. However since China Mobile will soon be launching 4G, more than likely Apple will be able to increase revenues substantially. Apple's revenue in China increased 6% y-o-y but increased by a whopping 24% on a sequential quarterly basis, second only to Japan. I personally think China will be the main growth market for Apple, which should help increase revenue for the whole company.

Another wild card is the fact that Apple might surprise us with some sort of gadget that no one is counting on. As I wrote a while ago (please consider: Apple Has Many Aces Up Its Sleeve), I don't see the reason why Apple can't get in the medical and health gadget business, either by introducing its own devices or through an acquisition. Basically Apple can surprise us with a number of things that the market is really not counting on. While the iWatch is something that the market is waiting for, I don't think it will be the big surprise.

However, if there is one catalyst that has the potential to double Apple's stock over the next 24 months, that is Carl Icahn's $150 billion stock repurchase plan that he is pushing for.

Like I said above, Apple's stock can trade anywhere between $400 and $700 without being considered expensive or overbought. However if one reduces Apple's float by let's say 25% over the next 2 years, then the normal price range that Apple can trade for without being very expensive might be between $500 and $875 (adjusted for the reduced float). Assuming you can buy Apple on a correction, let's say at the $475 mark, then with a few dividends here and there and assuming the market holds up and Apple continues with very modest growth, the $150 billion share repurchase that Carl Icahn is pushing for might almost double Apple's share price within 24 months.

Bottom line

I think Apple's stock represents a golden opportunity for investors that is very rare in financial markets. That is, the opportunity to buy a stock that has the lowest possible risk attached to it. Even if Carl Icahn does not manage to persuade Apple for such a large repurchase, and even if Apple's stock does not double over the next two years (as a result of the $150 billion share repurchase not materializing), Apple's stock is currently trading at very modest multiple with some very good catalysts going forward.

In other words, buying today you have very little to lose, but a lot to win, depending on how things turn out over the next two years.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.