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Is Top-Scoring Big Cap Share Apple Inc. Still A Buy?

During 2013, I’ve looked at most shares in the FTSE 100, and some other big caps, and graded them against these five quality and value indicators:

  • Dividend cover
  • Borrowings
  • Growth
  • Price to earnings
  • Outlook

Some companies scored highly against the business quality indicators of level of borrowings, earnings growth record, and outlook. Some shares scored highly against the value indicators of dividend cover and price-to-earnings ratio (P/E).

Quality and value in harmony

However, the most promising investment opportunities scored well on both business quality and valuation indicators.

In this mini-series, I’m revisiting some of the highest scoring shares to look at events since the original article and to assess the quality of the investment opportunity now. Some of these high-scoring firms could be investment winners for 2014 and beyond so, today, I’m revisiting Apple (NASDAQ: AAPL.US), which scored 23 out of 25 in February. 

Slipping margins

Apple reports financial results quarterly, so we’ve had two reports since February, and each shows a continuing decline in profit margins. The 3rd quarter results, which cover the period to July, show that the gross margin is down 14% on a year ago at 36.9%. Net profit per diluted share is also down, some 20% on a year ago.

Such figures help to explain why the shares were down from their peak back in February at $442 when I wrote the last article. Since then, the shares have rallied 21% to $533 in anticipation, no doubt, of steadier trading in 2014.  

Valuation

2013’s slippage in financial performance will knock my business quality score a little, but iPad and iPhone sales are increasing, and the firm remains highly cash-generative. Apple expects a return to earnings growth in 2014.

In February, I thought that the P/E rating slightly understated earnings and yield forecasts. Today, I think the forward P/E of around 12.3 is up with expectations for earnings and the anticipated 2.4% forward yield.

What now?

2013’s trading demonstrates that Apple must work harder to grow now that margins are slipping. Perky growth in cash flow and profit is likely to be yesterday’s news as the firm endeavours to maintain its market-leading position in the market going forward.

I don't think investors can expect 'bagging' opportunities from Apple anymore and that's why I'm more interested in a share that one of the Fool's top investment writers has uncovered. He has put his money where his mouth is by investing and believes the share is the "The Motley Fool's Top Growth Share".  

I must admit, at first I was sceptical, and just put it down to marketing fluff  but, actually, the report makes a convincing investment case for a well-established company that has taken a good hard look at its markets and re-envisioned itself to align its strategy with today's growth opportunities.  I recommend you run your own slide rule over this one after downloading the report by clicking here.

> Kevin does not own shares in Apple. The Motley Fool owns shares in Apple.