Good morning investors!

Our goal is to provide high quality content that gives our IE+ members an EDGE in the market. We strive to not only adapt, but refine, perfect, and elevate our content week after week.

Last month we introduced our latest addition to the Investor’s Edge catalog: a monthly “Top Stocks to Watch” report. In this exclusive article we will break down 10 stocks that we are watching in the upcoming month and beyond so you can be prepared for what lies ahead.

Grab your coffee and let’s dive in.

Watchlist Performance - March 2024

First, let’s take a look at how our top stocks to watch in March performed:

By comparison, here is how the major indexes performed in March:

You can see why we were watching these stocks and what we expected to happen here:

Top 10 Stocks to Watch - April 2024

Here is our April watchlist along with several key valuation metrics that we like to use for our stock analysis:

You may notice a theme in this month’s watchlist - mega cap, REITs and commodity related stocks. We’ll explain our reasoning in more detail below.

Apple

Apple is an American multinational technology company headquartered in Cupertino, California, situated in Silicon Valley, which was founded on April 1, 1976. The company specializes in designing, developing, and selling consumer electronics, computer software, and online services. Notable devices in Apple's portfolio include the iPhone, iPad, Mac, Apple Watch, and Apple TV, while its operating systems encompass iOS and macOS. Apple also offers a range of software applications and services such as iTunes, iCloud, and Apple Music.

Apple is down -9.8% this year and the stock sits at a critical level. The second largest company in the U.S. by market cap is a carryover from last month and remains at the top of our watchlist as shares have come under fire for a number of reasons lately.

One of the primary reasons of late has to do with pressures in China. The Chinese economy has yet to recover since the pandemic, so a lack of growth in what is the company’s second largest region does not bode well in the near-term. In addition, Chinese government officials are no longer able to utilize an Apple iPhone. It cannot be out of the question that Chinese leaderships looks to expand this ban as well.

In other news, Apple paused its work on its Apple Car project, shifting many of those employees to focus more on AI related tasks. Not much has been discussed as it relates to Apple and AI, but the company is historically very tight lipped about upcoming projects.

Apple reported first quarter 2024 earnings on February 1, 2024. The company generated a net income of $2.18 per share, beating estimates of $2.10 per share, and rising 13% from the same period the year prior. Revenue rose 2% year-over-year to $119.58 billion. Analysts had expected $117.99 billion.

On top of beating on the top and bottom lines, Apple’s operating income rose 12% YoY to $40.4 billion. iPhone sales were up 6% YoY to $69.7 billion, while Mac sales were flat YoY and both iPad and accessories sales fell. But Apple’s services revenue continued to grow, increasing 11% YoY to $23.1 billion.

Apple did not provide guidance for the current quarter but hinted at potential weakness in iPhone sales. The CFO mentioned an expectation for similar iPhone sales as the previous year, and overall company revenue is anticipated to be comparable to the prior year. Services growth is expected to mirror the 11% seen in the December quarter.

Over the last 5 years, Apple’s EPS CAGR is 15.0%. Apple’s forecasted EPS growth rate for 2024 is 8.4% and analysts estimate an 11.0% CAGR over the next 5 years.

Apple’s 5 year dividend CAGR is 5.6%. The company has had stock splits over the years so the values are split adjusted. When you combine the dividend growth and price growth, Apple’s 5 year total return CAGR is 30.1%.

In the last two editions of the “Top Watchlist Stocks” we discussed how Apple shares looked overvalued, which proved to be correct. Since making that statement, shares of AAPL have declined by 10%.

Again, although stocks appear on our watchlist does not necessarily make them a buy. There is usually a reason as to why we have not yet made the buy, and that usually has to do with valuation.

Speaking of valuation, Apple’s P/E valuation has fallen from 29.5x down to 26.3x and could go lower. The stock historically trades closer to an average P/E of 27.5x, meaning the stock is fairly valued on current terms and starting to look a lot more intriguing on a forward multiple, which is sitting at 25.7x.

Over the last 12 months, Apple has generated $99.6B in free cash flow, or $6.41 per share, resulting in a P/FCF of 27.4x. That is in line with its 10 year historical average of 26.6x but above the industry average of 21.9x.

When we combine both our DCF and relative value models, Apple has an intrinsic value of 133.55. With AAPL shares currently trading at 168.77, that means there is a 21% premium for the price.

A share price of $167 is a major support test for the stock in the near-term and if it falls below that, we could see Apple fall into the $150s, which would be VERY interesting. If Apple falls below $160, we would be looking to add to our positions. Headwinds are there, but the potential with AI being added to the phones could reignite much needed growth for the company.

There has been a lack of growth from the company with device sales struggling in the past year, but there could be a few catalysts ahead to help the stock rebound this year despite some short term pain. With Apple expected to report earnings on April 25th, this will be a stock we are watching closely this month.

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