The founder of the Deep Value Investment Club of London likes Apple’s deep value.
From Michael Wiggins De Oliveira’s Not Too Late For Shareholders To Act:
In my humble opinion, as an incessant bargain hunter, I believe that the market is under-appreciating Apple’s unrivaled war chest. Apple’s Q1 2018 results showed it having a net cash position of $163 billion — roughly speaking 20% of Apple’s market cap made up of cash. Furthermore, CFO Luca Maestri was resolute and unshakable on its earnings call that Apple would be a huge beneficiary of the recently enacted U.S. tax law, and that it would seek to repatriate its huge overseas cash…
I define a good business as being a business with a high free cash flow margin (defined as FCF/Revenue expressed as a percentage). I favor high free cash flow margin businesses, above 5% FCF margin, as these typically represent an ROE above 15%. Furthermore, given the choice, I prefer to work a little harder and seek out businesses with a FCF margin above 10%.
By comparison, Apple’s average free cash margin over the past five years is more like 25%.
Moreover, as De Oliveira notes, Apple is one of those rare high FCFs with a low PE.
More often than not, when high FCF generating businesses present themselves, these businesses are nearly always trading at inflated multiples, leaving the bargain hunter without the necessary margin of safety for a rewarding investment. However, as can be seen, Apple certainly has a huge FCF margin.
My take: This might not be news to anyone here, but it’s refreshing to read it on Seeking Alpha.