Question

1. Select a company of your choice and research the stock, stock valuation, and stock market Equilibrium (i.e. GE Capital, Wal-Mart, Apple, Google, Yahoo, IBM, Boeing, Target ...etc) and explain why the stock would be a good or bad buy.

Answer 1

Here for this analysis we select the company of choice as APPLE.

The current price of APPLE stock is 178.54 with a trailing P/E of 14.73. The beta of the stock is 0.99. It has robust profit margin of 22.72% and an attractive return on equity of 25.98%.

If we assume that CAPM is valid, then Rf = 2.64% and Rm-Rf = 4.49%

Then with beta = 0.99, the required return on equity is: 2.64% + 0.99*4.49% = 7.09%

Since the achieved return on equity is much higher, it is worth investing in the stock at reasonably attractive valuations and also with robust profit margins.