Fund Manager: Here’s Why I’m Buying Apple

apple colorDespite the recent exodus, Apple (NASDAQ:AAPL) has its share of loyal investors who are choosing to wait out the share-price storm of the past few months. In fact, several have used the more palatable price — Apple has now fallen just under 30 percent since mid-September — to increase their holdings in what they believe is a wise long-term investment.

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Wedgewood Partners is an appropriate case in point. The advisory firm was busy expanding its Apple portfolio as 2012 faded and the stock price tumbled on rising capital gains taxes fears and near-term profit worries. After months of buying, the iPhone maker now makes up more than 9 percent to be the biggest weighting in the RiverPark/Wedgewood large cap growth fund.

“Apple is still king of the hill,” Wedgewood’s chief investment officer, David Rolfe, told The Wall Street Journal. “I wish we could add even more at these levels, but we can’t.”

Rolfe, whose firm has about $500 million in assets under management, understands why some investors are keen to get rid of their stake, but he has reasons for believing in the stock. The company launched several new product lines in the last quarter of calendar 2012 and continues to increase its already burgeoning cash holdings, making it cheap on a valuation basis.

“It was certainly ripe for some profit taking,” Rolfe said. “But the market is now pricing in a bear market of Apple’s fundamentals, which just isn’t the case. If you assume margins hold steady and the company maintains a single-digit growth rate, the fair value of the stock is still $750.”

Rolfe told Barron’s at the end of last month that Apple’s stock was trading as if it may increase revenue only 3 percent or 4 percent per year, rather than the 22 percent modeled for this year. In addition, the consensus Wall Street estimate is now as close to Apple’s hyper-conservative guidance as it has ever been, which raises the possibility of Apple beating estimates when it next reports earnings next week.

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And according to Rolfe, his fund wasn’t the only one to add to its position at the bargain price of around $500. In the September quarter, Wedgewood ranked only 67th in percentage of fund holdings invested in Apple.

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