Why I Still Like Apple

In after-market trading yesterday following another blowout earnings release, AAPL was up to $158, almost double its price when I first recommended it in mid-January. At that time, the street was worried about Steve Jobs' health, but I thought the company was well-positioned to prosper on its own. Apple's secret is a culture of excellence and industrial design that has little or no parallel in the industrial world. Excellent software and excellent hardware, including the iPhone, make an unbeatable combination. As I said back then, if you don't want to buy the stock, at least buy one of Apple's products and see for yourself.

At this point I don't see any serious competition. Windows 7 may end up being a lot better than the failed Windows Vista, but it doesn't look to be much more than an able competitor to Apple's Leopard OS that came out a few years ago. The big problem Microsoft (MSFT) faces with Windows 7 is that the IT folks and many consumers will be very slow on the uptake, having been burned with Vista. Plus, it will require new hardware for many. I'm willing to bet that a lot of folks will give Macs and the iPhone a try, rather than struggling through yet another Windows software and hardware upgrade.

Apple's latest revision to its OS will come out this September, before Windows 7 is released, and it will not require new hardware. Indeed, it promises to run much faster on most existing Macs, and will reportedly save 7 GB of hard drive space. Simpler, smaller, and faster is always better than bloat.

Apple stands to continue to gain market share for the foreseeable future in the personal computer, business computer, and smart phone markets, having already captured most of the MP3 player market. With its operating leverage applied to significant market share gains, AAPL should continue to be a money machine, at the same time it thrills the world with technological marvels that are also stunning to look at.

Full disclosure: I am long AAPL at the time of this writing.

Comments

[Roger Knights:]

"Apple's secret is a culture of excellence and industrial design that has little or no parallel in the industrial world. Excellent software and excellent hardware, including the iPhone, make an unbeatable combination. ... Apple stands to continue to gain market share for the foreseeable future in the personal computer, business computer, and smart phone markets, having already captured most of the MP3 player market."

Agreed. It's amazing how a purely bean-counting analysis (e.g., that of the AAPL-bears like Huberty back in the fall) can miss the fundamental qualitative advantage that Apple has. (E.g., its OS is built upon a rock, unlike MSFT's.)

However, the company is also dumb and inconsiderate and pigheaded in spots. It missed a great opportunity to buy back some of its shares when they were under $100 with some (say 25%) of its absurdly huge cash hoard.

Jul 22 06:58 AM

[Paul Zimbardo:]

I agree that AAPL is still a great long-term investment, I am hesitant about buying it at this price level. I have owed AAPL for years and enjoyed the ride but I would wait until it inevitably slips back into the $140s before its next earnings blow-out before adding to my position. My current strategy? Sell puts ~$145 and enjoy the premium while I wait.

As the Wall Street Journal points out, Apple is still strong, but it is near impossible for it to continue to double its market cap.

online.wsj.com/article...

Jul 22 10:05 AM

[brewer:]

Apple's market can continue to grow as Microsoft's continues to shrink. Who else can compete? Personally, I see Windows 7 as very much like Vista, and more of a service pack for XP than any real OS X threat.

Jul 22 10:49 AM

[tresspass:]

as the economy begins to show more strength as it has been doing day by day sans job market ( which, imo, has already begun stabilizing ) watch for a much larger holidat buying season with the IPhone at the forefront; I can see Apple nearing $200 and splitting.

Think of the component makers that populate the IPhone. THERE is the real leverage.

Jul 22 11:16 AM

[Zenfar:]

"The big problem Microsoft (MSFT) faces with Windows 7 is that the IT folks and many consumers will be very slow on the uptake, having been burned with Vista. Plus, it will require new hardware for many."

Actually people are finding the Windows 7 runs great on very old hardware. The kernel has been reworked. The is a virtual XP mode which will help it integrate into the corporate world. Windows 7 will be a major driver for the PC ecosystem. A Windows 7 PC is the path of least resistance for people looking to upgrade from XP.

The driver for Apple is the iPhone. Also a tablet would be very welcome and would not cannibalize their notebook sales.

I look forward to a real battle of the Titans between these two companies.

Long MSFT and Apple (via the QQQQ).

Jul 22 11:24 AM