'New York Times' Apple Article Not A Fundamental Risk

| About: Apple Inc. (AAPL)

The New York Times published an article on Sunday, April 29, that described some of the ways that Apple (NASDAQ:AAPL) legally lowers its tax payments.

Technology and pharmaceutical companies are the ones that take the most advantage of the tax code due to their ability to transfer intellectual property to other countries. Almost all tech companies utilize these techniques and typically are able to defer a good percentage of the taxes due. The companies don't want to bring the profits back to the US due to our 35% corporate tax rate (minus what taxes have been paid on those profits in the originating country).

This is not a fundamental risk to Apple. Could a few people decide to not buy Apple products due to this? Possibly, but the numbers would be so small compared to the millions that do.

Could it be a risk that Apple has to pay higher taxes? Possibly, but it would require a change to the tax code, and the changes that are being talked about are to reduce the rate, which may lead to more cash being brought back to the US, which would be good.

I believe the biggest risks to the stock are that competition will increase, growth rates will come down to more "normal" rates (to the teens) next year, and other risks could appear (such as the iTV disappointing when it is announced).

Overall, I believe the stock will move higher. This is based on:

  • A PE multiple of 12x that is very low since Apple has much higher growth rates, especially when compared to other companies metrics.
  • New products, especially the iPhone 5, should have a larger screen and 4G LTE capability, which would sustain and probably increase its momentum in the market.
  • The iPhone 5 could then be sold by China Mobile, the largest wireless service provider in the world.
  • China could double its revenue over by 2013 and surpass the US.
    • Expect more Apple stores to open in China
  • Cash of $117 per share (20% of market cap) that should grow to $150 by the end of this year and about $200 by the end of 2013.
  • A dividend that will be paid later this year is allowing more funds to buy the shares

I believe the shares can get to $785 or possibly higher over the next year. This is calculated by either:

  • A 15x PE multiple on calendar 2012 EPS of $52.50
  • Use a 13x PE multiple on the $52.50 in EPS and add $100 (of the $150 in cash per share at the end of the year)

Disclosure: I am long AAPL.

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