One Big Insider Sale at This Tech Giant
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Apple (NASDAQ: AAPL) has seen a bit of bullish insider trading activity in November (see our full report here), but the latest Form 4 filing from the SEC is a stark contrast to this behavior. Insider trading sentiment is always an important indicator to track, because our empirical research has proven that individual investors can beat the market by an average of 7% a year following insiders if they know where to look. Here's our strategy.
As our records indicate, Apple's Senior Vice President of Technologies, Bob Mansfield, sold 35,000 shares of his company last Wednesday evening, at an average sale price of $582.21 a pop. According to the SEC filing, the "transaction was executed in multiple trades at prices ranging from $582.00 to $582.88." Altogether, the move was worth a whopping $20.37 million, and was the largest sale Mansfield has made in the past three years.
Looking at the Form 4, we can also see that this exec still has 29,548 shares of Apple in his possession, worth an approximate $17.28 million. Now, you may recall Mansfield as the man who received "an exorbitant package of cash and stock worth around $2 million a month" to remain with the company, according to Bloomberg Businessweek's eye-opening report in early October.
After Mansfield retired in late June, the report indicates that "several senior engineers on Mansfield’s team vociferously complained to [Tim] Cook about [...] his replacement, Dan Riccio, who they felt was unprepared for the magnitude of the role," and two short months later, Apple made it public that Mansfield had decided to stay.
At a gross salary of $24 million a year, not to mention the 150,000 AAPL option contracts Mansfield can lay claim to next summer, it's clear that the Cupertino veteran isn't in need of any additional pocket change, so one can reasonably speculate that his recent sale may have been a result of: (1) investment diversification needs, (2) liquidity, or (3) simple avoidance of the creeping fiscal cliff, which will likely raise both dividend and capital gains tax rates.
In the trading since Mansfield's transaction, the markets haven't taken a stance on shares of Apple, as they've traded in a rather tight range between $590 and $584. Though the technical indicators - a weak MACD - aren't particularly positive on the tech company's immediate future, we still like this stock in terms of its valuation.
At their current market price, shares of Apple trade at a mere 10 times forward earnings, with sell-side analysts expecting 19-20% EPS growth over the next half-decade. In comparison to competitors like Google (NASDAQ: GOOG) (15.7%) and Microsoft (NASDAQ: MSFT) (9.8%), these estimates are rather advantageous, and are even better than what is expected of Oracle (NASDAQ: ORCL) (11.9%) and Hewlett Packard (NYSE: HPQ) (10.6%) over the next five years.
Interestingly, Apple’s bargain bin forward earnings valuation is below Google (15.0X) and Oracle (11.1X), despite the fact that its growth prospects look decidedly more attractive. Microsoft (8.2X) and Hewlett Packard (3.6X) do trade at cheaper forward P/E’s than Apple, but the Cupertino-based company sports a best-in-group PEG ratio of 0.68.
Closest competitors Google and Microsoft have PEGs above 1.3, indicating that investors are seriously underestimating Apple’s potential. Sure, growth – which averaged 62% a year over the last five years – is slowing down, but it’s time we stop comparing Apple to itself, and start comparing it to the rest of its tech brethren.
A bel0w average cash flow valuation of 13.3 times free cash flow is also peculiar, as the company is currently sitting on close to $120 billion in cash, giving it the ability to pay a special dividend if it so desires. This valuation is far below Google (18.0X), and nearly in line with that of Oracle (12.8X).
We've already discussed the possibility of Apple putting some extra bulk in investors' wallets this Christmas (see: "Will Apple Pay a Special Dividend?"), but the valuation alone makes this stock worth consideration. While there may be some near-term uncertainty, Apple still has rock star potential over the long haul, which is likely one of the reasons why it's the top pick among the world's most successful money managers.
This article is written by Jake Mann and edited by Meena Krishnamsetty. Meena has long positions in Apple, Google, and Microsoft. The Motley Fool owns shares of Apple, Google, Microsoft, and Oracle. Motley Fool newsletter services recommend Apple, Google, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!