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More bold financial predictions for 2012: Part Two

Q. Which particular stocks might do well? And why?

A. We’re bullish on Apple. The stock is cheap relative to its growth prospects.

  • Forward price-earnings ratio = 10.6 times vs. 13 times for the S&P 500
  • P/E to Growth (PEG) = 0.6 vs. 1.1 for Industry
  • Projected EPS Growth: 22.7% per annum for 5 years
  • $70 billion in cash & marketable securities on balance sheet
  • Superlative brand name – “Halo Effect” for new products
  • Most profitable retail stores in world (per unit). Strong growth ahead in U.S. and abroad (especially China)
  • App Store very scalable and increasing in margins
  • Steve Jobs has laid out a strategic plan that will last for many years.
  • Will eventually use its mountain of cash to acquire promising technology or companies.
  • Current growth areas in 2012: Rollout of iPhone 5, iPad 3
  • Possible future growth area: “full blown” Apple TV
  • Target Price = 13-15 times projected 2012 earnings of $32.53 = $425-$490 vs. $411 today

Q. Anything unexpected that might happen in 2012?

A. We think political gridlock will be a major theme in the U.S. and Europe for 2012.

  • Pan-European gridlock drives continued volatility
  • Financial markets performance will be dictated by the evolving European political scene, not by specific company performance.
  • Political gridlock at home digs the U.S. deeper into the Hole
  • Overindebtedness at both the governmental and household levels
  • Long-term structural problems -- Social Security entitlement programs, financially unstable Medicaid, a Rube Goldberg tax code, federal debt likely to exceed $16 trillion by Election Day – go unaddressed
  • Higher interest rates, increased taxes, and reduced entitlements lead to widespread social discontent

We also see social unrest continuing on a global basis. Indeed, Time named “The Protestor” as its “Person of the Year.”

Rather than die out, we believe these protests and ultimately social unrest will accelerate throughout the world as the further enactment of austerity programs and continued sluggish economic growth result in increasing economic despair for billions of individuals. The welfare state is in the process of being dismantled in Europe, with the stage being set for material reductions in entitlement programs in the U.S. after the 2012 elections. Asia will be beset with slowing growth, as its largest trading partners (Europe and the U.S.) struggle, and an increasing disparity between rich and poor that will ferment into social and political upheavals.

To receive Warren Boroson’s column regularly, drop him a note at This e-mail address is being protected from spambots. You need JavaScript enabled to view it .

ALSO BY WARREN BOROSON

Bold financial predictions for 2012: Part One

Your home: A perfectly terrible place to keep cash

Checking a stock's book value can be rewarding

VDIGX Vanguard Dividend Growth is a good place to put extra cash

My new roof just cost me $9K

Poor health could drive you to the poorhouse

Emerging markets are looking good for investors

The absolute basics of estate taxes

Bad news: ‘You need a new roof’

Stock market tips from 'What Works on Wall Street' author James P. O'Shaughnessy

How to be successful in the stock market

Why investing is like baseball

Mutual fund math problems are tough questions

Worst mistake that investors make

It's time to sing the praises of Warren Buffett

Remembering the great stock market crash of 1929

Another handyman horror story

Should you pay by the project or by the hour?



 

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