Charles Schwab senior Vice President Greg Forsythe is the man behind the investment firm’s equity ratings system, a system first unveiled in May which attaches academic-style grades of A – F to stocks. Forsythe recently discussed the system — and his view on specific stocks including Apple — with BusinessWeek Online.
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The system grades stocks on four different investment perspectives over the next twelve months: valuation, fundamentals, momentum and risk. “The Schwab Equity Rating represents the weight of the evidence when we combine those four different perspectives,” Forsythe explained to BusinessWeek.
Apple rates an F, according Schwab. Forsythe said that investors are “emotionally linked to Apple,” but his company considers it “pretty unattractive across the board” thanks to an above-average multiple of earnings and cash flow and Apple management’s predilection for issuing shares instead of buying them back. Forsythe also said that a disparity between Apple’s reported net income and its operating cash flow make the company’s earnings quality look very poor.
Other companies to receive a poor rating from Schwab include Hewlett-Packard, Target, Southwest Airlines and Krispy Kreme.