Why Apple Belongs in Every Portfolio 26 comments
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This 33-year-old company dominates the consumer market spaces it competes in, has no debt, and is sitting on a cash pile of over $25 billion. In the face of the current recession it continues to do well - unlike many of its competitors.
Back in 1982, you could have purchased 100 shares of this company’s stock for $160. Those same 100 shares would be worth roughly $92,000 dollars at today’s split-adjusted share prices.
That’s a 5,460% return, something most people won’t ever see in a lifetime of investing.
Fortunately for us, this company’s prospects are only looking brighter. In fact, it has plenty of space to grow and do it all over again. And it won’t matter whether you’ve been there from the beginning or jumping into the bandwagon today - the ride looks to be profitable nonetheless.
Let me show you a few reasons why this stock belongs in everyone’s portfolio.
Ignoring Competitors and Analysts
Today, its bewildered competitors plod along, introducing ho-hum, cheap, “me-too” products in a vain attempt to undercut its expensive prices and its ever-increasing market share.
Most of these attempts are pitifully ineffective. Regardless, this company just ignores them. Always executing from a tower of strength, it defines and controls the markets it operates in, rewriting the rules for the other players.
In addition, it creates new markets where none existed before… paradigm-shifting consumers’ lives and thought processes.
The company’s uniquely distinctive advertising and its incredibly thoughtful, aesthetic product designs give it a unique position in the consumer electronics industry - one that it’s not likely to give up anytime soon, if ever.
Numerous analysts have predicted the company’s demise over the years, saying its products are too expensive and won’t sell well in recessionary environments, that it’s a “one man show.”
The company’s response? It ignores the analysts, too. Because they just don’t get it. You see, it has something that most analysts don’t possess and never seem to be able to put a proper value on:
- Long-term creative vision
- The will and confidence to ignore all the pundits and naysayers
- A first-class management team to drive the execution of its secretive plans
Apple: The Foremost Consumer Electronics Leader
If you haven’t already guessed, I’m talking about Apple, Inc. (Nasdaq: AAPL), the foremost consumer electronics company in the world. And its stock belongs in everyone’s portfolio.
Granted, I’m a little biased. I’ve owned its products since the 1980s and just can’t imagine living without them.
Its customer base is made up of students, educators, businesses, government agencies and consumers of every sort. The company’s business strategy centers on its ability to design and develop not only its products, but the software operating systems they run on.
Its Mac computers are first class, easy to use and run all the popular software found on Windows machines. And they run those programs better and without all the viruses, spyware, malware and hacker attacks that constantly plague Windows users.
I’ve converted several long-time Windows users to Macs, and once they saw how easy they were to use - and how few problems they had, they wondered why they hadn’t switched over long before.
The company single-handedly redefined the entire music business with its iPod and its iTunes music store. And it did it in a relatively short span of four to five years, generating billions in annual revenues in the process. Its share of the Mp3-player market remains well above 75%.
Now it’s doing it again with the iPhone, the slickest smartphone on the market. Sales of the device grew 245% in 2008, according to a Gartner research report. That compares to 96% for Research in Motion (RIMM) and a paltry 0.8% for Nokia (NOK).
While the iPhone is number three in terms of overall marketshare (8.2%), it’s clearly growing the fastest, and could easily overtake Nokia and RIM in a couple of years.
In the simplest of terms, Apple has figured out how to create products that most people would design if they could give their two cents to the Apple product development teams. They’re simple and easy to use, just like everyone wants them to be.
Apple’s Cash Cow Just Keeps Getting Bigger…
Apple’s second-quarter financials will be released April 22, in what is always a highly anticipated conference call. The company constantly downplays future expectations when talking to analysts, and then routinely beats them by a wide margin.
This quarter’s results will be particularly interesting, as it will give investors a better idea as to the effect the recession is having on the company. So far, Apple has appeared to be somewhat resistant to its effects, helped in no small way by a constant stream of new product innovations and introductions.
However, one of the major sources of future revenue is constantly overlooked by analysts. Whenever the company sells an iPhone, it only books about 10% of the money it receives as revenue, and defers the rest.
It then books this annually over a period of 10 years. This is a constantly increasing future revenue stream that’s like cash in the bank. Great for when times get a little tough.
And then there’s the “Apple effect.” This is logic that goes along the lines of: “If Apple’s (iPhone or iPod) is this good, its computers must be great, too.”
That phenomenon has analysts betting the company will sell 2 to 2.2 million Mac computers for the January-March time period. The company has plenty of room to grow here, too, as it currently has under 10% of the overall PC market.
Given how well the company has been performing so far during this recession, it appears that shares are still cheap. Investors interested in owning a few shares might want to wait until after this quarter’s results are announced on April 22, as there is generally a pullback in the stock after earnings results.
Apple is certainly on top of its game, and I believe it will continue to stay there as long as it continues to make the rules that all its competitors have to follow.
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This article has 26 comments:
APPL is set for a storming future, no doubt at all.
I bought some of the stock in November and have seen a 41 per cent gain.
I am British and currency movements explain some of this uplift.
However I would definitely buy more shares if there is any pullback ahead. Somehow I doubt there will be.
James Cornish
On Apr 12 09:53 AM User 393428 wrote:
> I agree with the article, but not your numbers- split adjusted, 100
> shares in 1982 cost $1500-2000-
About what I paid for the last Apple II+ sold in my neck of the woods around that time. I no sooner had it all put together when it became obsolete, superseded by the //e. Wish I'd put the money into AAPL instead of that stupid-ass computer which long since went to that toxic waste dump down the road...
How well put! It is really astounding how the analysts are so incredibly out of touch. I imagine that they are so completely surrounded by Windows machines, and Windows-bound IT troops that they incapable of escaping the Microsoft religion. (It is true that many financial programs are Windows only.)
But this simple phrase really sums it up. Along with: "The company’s response? It ignores the analysts, too."
Only one thing left out of the list that the analysts do not get:
- They have assembled a team of brilliant engineers who are all (for the most part) as dedicated to producing the most useful and aesthetic products possible as are the company leaders.
As soon as they start paying dividends, I'll drink the Kool-Aid with you.
The next time AAPL crosses $200 / share it won't be Kool Aid we'll be drinking.
It was only a short time ago they were ridiculed for holding only about two percent of the computer market. They are closing in on (and some estimates put it over) ten percent. A five-fold increase. Care to guess what market share it would take for them to be the biggest computer maker in the world? Only about sixteen percent, the market share held by HPQ with Dell a distant second. Pretty impressive when you appreciate the likelihood that Apple's products enjoy a significantly greater profit margin than any Windows box maker.
Look beyond the consumer market, where Apple has visibly established a strong foothold. The PC market has long been dominated by businesses who force IT support-intensive Windows products on their employees, most of whom would choose Macs if given a chance. Who will drive this market in the future? Legions of youngsters who grew up with iPods and are now buying iPhones by the millions are entering the business world and will reject the failed increased office productivity promises that Microsoft has been peddling for far too long. Microsoft has become synonymous with staid, aging, crash-prone and virus-infested software. The very Windows metaphor itself is tired. The world will soon look back on MSFT having reached the pinnacle of its success with Windows XP.
For entertainment's sake, I keep a library of many dimwitted pundit articles who have written about Apple's demise for years. To wit:
Apple should license its operating system - just like MSFT
The iMac is doomed for its lack of a floppy disk (who remembers floppy disks?)
Apple retail stores will fail just like Gateway's (who remembers Gateway?)
Apple's iPod is an iFlop
Apple should "pull the plug" on its iPhone
...and anything John Dvorak has ever said.
To paraphrase an early Rolling Stone's review of a little known New Jersey musician: I have seen computing's future, and its name is AAPL.
Anecdotally, literally everyone I know in the market for a computer is asking me about Macs. Microsoft is floundering, and having to target Apple in their ads. All the windows PCs are generic computers, incapable of running Mac OS X reliably and look as if they were designed in the 80's.
It's very true that a great many financial pundits and business people still have absolutely no idea about this company. They know it's a great short play, they have heard of the iPod and iPhone but they still seem to think these are short term fads and that Microsoft can hold it's market despite all evidence to the contrary.
On Apr 13 08:34 PM Jae Jun wrote:
> AAPL at $200 is still only around 80%. It's good but not good enough
> to be a KO or a JNJ. It's a stalwart in my opinion.
you make it sound as if we can expect another 5000% increase in stock price in the next decade, which is very unlikely. you say sky is the limit, well, if you start to hike up out of a deep hole like apple did in recent years it sure looks that way, but this can be very deceiving. you mention all the pros but none of the cons, which shows just how biased this analysis is, whether its on purpose or not.