Wearable technology could be "profound", or at least so says Apple (NASDAQ:AAPL) CEO Tim Cook. Granted he said this at the All Things Digital Conference in the aftermath of tax questions and dismal stock performance, but the truth of the matter is that Cook is probably right. After all, hasn't wearable technology been a major feature in every science fiction piece?
Before the public could imagine phones that travel with you, they imagined watches that could work like phones and allow users to look up information. With its futuristic impression, people will want wearable technology whether it is necessarily practical or not. But, I'm not looking at whether wearable technology is going to be a "game changer" -- I really only care about how to invest the trend.
In other words, would the release of an Apple iWatch make enough of an impact to warrant an investment?
An Apple for Your Wrist
At the conference, Cook spent a lot of time talking about wearable device and said that the wrist was an "interesting" area, and there has been lots of reasons to think an iWatch is coming, like the 79 patent applications Apple filed that all have the word "wrist" in them, but that doesn't mean such a venture would be successful. KGI Securities analyst Kuo Mingchi told Bloomberg, Wearable devices would complete the Apple ecosystem, yet the technology is not yet mature enough" -- and I have to agree.
Watches that have the ability to display text messages and view email have existed for years and they have yet to catch on. Obviously, if Apple launches an iWatch that is going to garner more attention than Pebble's Kickstarter campaign, but that doesn't mean it would turn things around for Apple.
Right now, Apple is trading at $444.95 on a 52-week range of $385.10 to $705.07. Analysts are encouraged -- the consensus is that the stock will reach $540.67 in the next year, making for a return of over 21% not counting its 2.7% dividend yield -- but I'm not convinced.
Playing the Field
I am bullish on Apple over the long term. I think it is a better value for longer growth horizon than the other would-be major wearable technology player, Google (NASDAQ:GOOG). The company is priced at less than 11 times its earnings whereas Google has a P/E closer to 26. Apple also has three times the net income Google has ($39.67B vs $11.22B) despite having a market cap that is only around 50% larger than Google.
Moreover, Google's wearable technology offering -- Google Glass -- is not nearly as universal as a watch. I agree with Cook, who said that Glass may have a hard time going mainstream. "I wear glasses because I have to - I can't see without them - but I don't know a lot of people that wear them that don't have to," Cook said. "People who do wear them generally want them to be light, unobtrusive, probably want them to reflect their fashion, their style … from a mainstream point of view this [pointing at his head] is difficult." Then, there is the matter of the price tag. If you just want a piece of wearable technology, are you more likely to drop $1,500 on Google Glass or a couple hundred on an Apple iWatch? (Apple has not talked about how much an iWatch would cost. I'm just making a comparison.)
Now, for a reality check. Just because Cook is generating some interest by dropping hints about an Apple iWatch, it doesn't mean that the offering is developed well enough that it will be ready in time for Apple's new product release this fall. Cook has said "some really great stuff" is coming from Apple this fall and throughout 2014 -- that is a huge window to invest in. And, with Apple's lackluster performance and noted lack of new product releases after releasing new offerings on a schedule for so long, it is very likely that Apple's stock is going to dip lower before its price corrects.