Mark Spellman’s Value Line Income and Growth Fund does not have a history of adding Apple (NASDAQ:AAPL) to its portfolio, but the money manager’s attitude toward the iPhone maker is taking a turn for the positive. Spellman, whose fund returned 10.6 percent last year, told Barron’s in an interview that he was putting a $720 price target on Apple’s stock and adding the shares to his fund.
“[Apple is] a stock that reported $44 and change in earnings,” Spellman said. “I don’t think the earnings are going to be less than $45 in the next year, and I don’t think that you get less than a 10 times multiple on that, so the downside of Apple shares is reasonable, at $450. But if things go right, I still see upside is closer to $50-$51 in earnings, so I’m using a $720 price target. That’s a stock that we’ve been adding to recently, and it’s not a name that has historically been in the fund.”
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Spellman said his fund looked for companies with strong a free cash flow that would give them the flexibility to raise dividends, buy back stock, or make accretive acquisitions. The Value Line Income and Growth Fund has a four-star rating from Morningstar and has outperformed its moderate allocation peers for the past five- and 10-year periods, Barron’s said.
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The money manager is also optimistic about Google (NASDAQ:GOOG) because the search company continues to “absolutely dominate the online advertising industry” despite several predictions to the contrary. “It continues to be a terrific way to play online advertising, and the growth in that is going to be, say, 20 percent to 30 percent a year for the foreseeable future,” Spellman said. “There is Google Wallet, and a lot of their other efforts, which could pan out as well.”
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