Apple and Crocs: The best is yet to come?

Posted Jun 7th 2007 10:10AM by Georges Yared
Filed under: Forecasts, Apple Inc (AAPL), Crocs Inc (CROX)

I have written before that I spent 16 years as a senior partner at two investment banking-research boutique firms. My job was working directly with international accounts primarily in London, Paris, Zurich and Geneva and advising them on their U.S. stock holdings. Several portfolio mangers have become and remained friends to this day and we have the chance to talk often and swap some stock ideas.One portfolio manager in particular, let's call him Nigel, has a real delicate issue: he calls it walking on thin ice.

Nigel and I have been comparing notes for the past three years on Apple (NASDAQ: AAPL), and I am proud to say I brought him the idea when the stock was still under $20. He bought a boat load for the $12 billion diversified growth fund he manages. The stock has been one incredible performer as it closed above $123 yesterday. He has a six bagger in three years. He will not sell a share yet and I asked him why not take some profits off the table?

"Georges," he said, "this stock is priced high, yes, but if I sell it would violate my belief that Apple can actually go to $200 by next year!" I told him I have a $140-145 target, but $200? Nigel believes that any portfolio manager worth his weight will make Apple "the key position" in their portfolios. The earnings power and leverage has yet to be fully realized and the run could last a good 4-5 more years. "From iPod, iPhone launch, new cycled Mac, software, CPUs and the retail powerhouse stores, it's a winner across the board. Also, Georges, this company is going to continue to expand its operating margins." He is right, but $200?

Nigel went on to explain that every portfolio manager he speaks with is on board, not selling and will actually buy more on any dips. It's thin ice because the stock is up six fold already and taking profits is tempting.

We then spoke about Crocs (NASDAQ: CROX). He gave me full credit for the idea since the stock was at $44, now at $85. We agreed that Crocs is well past the niche/ fad stage and could be a full-blown global phenomenon in the making, as I've been writing. Those who listened when I first reccomended the stock have enjoyed a near double in this stock, and again, it's tempting to take some profits -- all or part. The earnings per share story, however, and the high operating margins are still compelling. I estimate Crocs can earn $4 per share next year, up from $3 this year. With a Price to Earnings multiple of 30x on $4 EPS, the target is $120 (accounting for Crocs 2 for 1 split effective June14th, earnings per share next year will actually be $2). Again, it feels like thin ice, but the numbers are real and the stock is not yet expensive when looking at all the important metrics of P/E ratio, P/E to Growth (PEG) ratio and earnings/revenues growth rates, as well as a whole lot more.

Nigel is a superb fund manager. He has an excellent history of outperforming the market and he has not sold one share of either Crocs or Apple. Could it be the best is yet to come?

Georges Yared is the CIO of Yared Investment Research where he explores more growth stock ideas.

Tags: aapl, apple, crocs, crox

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Reader Comments (Page 1 of 1)

6-08-2007 @ 1:17AM

gslv said...

I count that Apple has doubled four times since #13. Why couldn't it double again, and more that once again? There's inertia of rest at work again in commentators.
If the iphone takes off like the ipod, why not. Think of all the iPod users who will replace their iPods. Like replacing your vinyl collection all over again with CDs. Some say sell before the iPhone arrives. Hope they're only thinking short term.