I've laid out my case for Apple (AAPL) many times and have been calling it a buy all the way from $530 down to my last recent purchase at $396 before their latest earnings.
I listed these five, fundamentally concrete reasons for buying at $396:
- The price is right. There's nothing I love doing more than buying after a strong sell-off and selling right after a strong buying panic. I took this week's 6% sell-off first thing as a cue to buy.
- It's the most fundamentally sound company in the world. It's raking in cash hand over fist, earnings "misses" are laughable as their revenues and margins are beyond world class still, and the company is sitting on enough cash to make Donald Trump look like your high school janitor.
- Treats are coming for loyal shareholders. It's been alluded to time and time again since Einhorn has started pressing shareholders to demand that Apple unlock their cash. CEO Tim Cook had alluded to it dozens of times, and it's only a matter of time before shareholders wind up with an added bonus like increased dividends, preferred stock, or share buybacks.
- Whether it's the iWatch, the iTV, or god knows what; we can expect a new product launch from Apple this year. With new products come free press, consumer excitement, and brand new revenue streams and market shares to tap into.
- Apple's purchase of WiFiSlam is a sign that they continue to do what they do best; develop.
Subsequent to that, Apple delivered earnings that impressed and also launched the biggest stock buyback in the history of the stock market. They offered up shareholder incentives to the tune of $60 billion and, more importantly, bet on themselves with their stock buyback.
From a technical perspective, the stock looks to have broken its slump, as it sits about its 50 DMA and has clearly broken the downward trend on the stock that has lasted for months.
The reasons I bet on Apple at $396 were things that I thought were going to be pretty much guarantees. I had rock solid reasoning behind my buys and was rewarded accordingly. However, there are three things that nobody is talking about that I wouldn't give much credence to, but wouldn't rule them out. These are three "great for investors" Apple long shots that probably won't happen, but theoretically could.
Investopedia defines stock split, for novice investors:
A stock split is a corporate action that increases the number of the corporation's outstanding shares by dividing each share, which in turn diminishes its price. The stock's market capitalization, however, remains the same, just like the value of the $100 bill does not change if it is exchanged for two $50s. For example, with a 2-for-1 stock split, each stockholder receives an additional share for each share held, but the value of each share is reduced by half: two shares now equal the original value of one share before the split.
There was a ton of talk about Apple possibly going through a split (as they have in the past), when the ideas for unlocking shareholder value were being tossed around. Is a stock split for Apple probably pointless from a financial fundamental view? Yes. The stock is anything but illiquid and splits don't offer any real tangible financial value.
However, from a psychological standpoint, it may seriously hold benefit for Apple. Traders that don't understand splits could be buying at $225, for instance, on a 2-1 split still expecting that the stock is going to rocket upwards of $700. From a psychological standpoint, a split could be an extremely positive event for people already holding Apple long.
2. Video Game System
It's no secret that one of the reasons I'm bullish on Microsoft (MSFT) despite them consistently producing crap products is because of Xbox. I recently wrote about why I thought Xbox was one area where Microsoft actually had a leg up on Apple:
It's worth noting that Microsoft does have one area of business where they have a massive leg up on Apple, and that's gaming. I'm extremely bullish on Microsoft because I'm extremely bullish on Xbox. Xbox continue to be the predominant system for most gamers, and it's the one area where Microsoft is actually both ahead of the curve, and semi-spearheading.
The benefits to Apple creating a video game system would be massive. Once getting over the initial costs of developing and launching a new product, they would have the following going for them:
- entirely new revenue stream
- continued household media integration with Mac and Apple TV
- negatively affect competitor Microsoft
There are tons of people from the camp that Apple will not make a video game console. ARStechnica.com talks about why it probably won't happen:
These days, it's the Apple TV that is most often cited as the stealth entry point for Apple's "ultimate game console," simply by allowing the thousands of iOS games to access the TV. Never mind that controlling games designed for a touchscreen might not be the most natural thing to do on a living room HDTV (no, things like iPad or Magic Trackpad controls don't instantly solve this problem). Apple did file a patent to let other devices act as Apple TV controllers, including what looks a lot like Sony's DualShock, but the vast majority of iOS games are not currently designed with this kind of control scheme in mind. For those that are, if people really want to play them on a TV with button controls, there are third-party devices that already add this functionality. Others are jumping on rumors of a new Apple TV graphics chip as evidence that the box will soon support 3D games, but there could just as easily be innocuous supply chain explanations for such a change.
I can see why the idea of an Apple game console is so alluring. The iPhone and iPod touch came out of nowhere to form a major gaming platform that has already decimated the market for dedicated handheld game systems from Sony and Nintendo. But those iOS devices largely succeeded on their own merits first as media and communication devices before there was even an App Store for game developers to work on. They only became gaming powerhouses after there was a sufficient installed base for other purposes.
A video game console, if successful, could be extremely beneficial to Apple shareholders in the long run, as Apple continues to dominate households and grow phone and computer market share worldwide.
3. Hybrid Touch Screen iMacs
This is probably the most likely out of the three scenarios to actually happen. After all, there is a relatively small dead zone between where iPads start and MacBook Air's end. Essentially, the missing link between the two continues to grow smaller and smaller as Apple marches forward. The PC market has already touched on this idea as Windows 8 has allowed computers to semi-seamlessly operate as touch screen entities.
(click to enlarge)
Of the scenarios, the touchscreen iMac really makes the most sense. CEO Tim Cook alluded to new products being launched as early as fall 2013 on his latest conference call, and it wouldn't be surprising to see this "long shot" come to fruition alongside the speculated iWatch, which we basically already know is coming.
In my opinion, the chances of these three things happening are as follows:
- Split: 10% chance in 2013, 50% chance before 2018
- Video game console: 1% chance in 2013, 15% chance before 2018
- Touch-screen iMac: 50% chance in 2013, 90% chance before 2018
I wrote in my last article:
I'm staying very long and strong with Apple. I think we have a well-established bottom here in the $400 level with the buyback and the dividends creating a support level for shareholders that we will not breach. As we move through the summer and fall, I'm going to expect Apple to continue to rise back to the levels it was at in the $500s, as long as the market itself continues its bullish sentiment.
All three of these have the potential to have positive impact on Apple as a company. As if I needed to have another excuse to be long Apple, these three long shots hang in the air, constantly suggesting to me once in a while through blog posts and rumor-mills that they might happen. As always, best of luck to Apple investors.