Apple Inc. is special. Apple has a culture of innovation. Apple gets it right the first time. Apple delivers simplicity and elegance in its designs. Apple is old enough and big enough to compete with any other company in the world. The sum of all of this is great implementation of a consistent vision: enrich the customer experience. The Apple Stores, the iPods, the MacTel computers, the iTunes Music Store, the OS X operating system, Apple TV and the iPhone all deliver the great user experience those of us in the Apple world covet and demand. We know that excellence is on the way. We buy without pause. That is why Apple Inc. is going to deliver outstanding results this year and why the stock will hit $200 per share.
I bought Apple on February 20, 2004 for a split-adjusted $11.19. I still own it. Today, at over $90, I consider the stock a screaming buy. Why?
The iPod continues to sell at year-over-year growth rates of over 50%. We expect 60 million iPods to be sold in 2007. The MacTel computers are experiencing accelerating demand with January 2007 sales over 100% higher than sales in January of 2006. We expect 12 million MacTel computers to be sold this year. The iTunes Music Store is an enabling technology that delivers ease of use across multiple hardware platforms. The Apple Stores have over $4,000 in sales per square foot, the most successful retailer in the world, by that critical metric. The Apple stores enable the success of the iPod and MacTel. Things will only get better when we add OS X Leopard, Apple TV and iPhone to the product line this year. We dare not guess what these sales will be. But, we believe they will be huge. We see a melt-up coming in 2007, regardless of general market conditions.
This is our creed: Stock prices are made by earnings growth and public expectations. We believe that earnings growth predicts the direction and magnitude of a stock price movement. In the case of Apple, when the iPod’s 50% growth rate is combined with the 100% growth rate in the MacTel computers, you have enough positives to nearly double Apple’s earnings. With the iPhone, Apple TV and OS X Leopard, the expectations for Apple near future have never been higher. This combination will drive the stock price to $200 this year.
The iPod was 3% of Apple's sales in January of 2004, according to statements made in the quarterly earnings call. I bought Apple in February of 2004. The iPod was dismissed as irrelevant by most of the analysts on that call. We knew better. I remember how the "Walkman" transformed Sony in the eighties. In 2004, I saw the iPod as the new "Walkman." Now "music", which is an Apple product category that includes the iPod, is over 40% of Apple's revenue. The right product can transform a company. We tend to know this before others. Apple is being transformed by the iPod, MacTel computers, and we expect the iPhone will be massively, immediately positive as well. I truly believe that Apple will be the first company to achieve a market cap of one trillion dollars. That 12:1 from today's valuation. And, I believe that this will occur in the next five years.
Focus your assets on Apple Inc. and expect a great year.
Disclosure: Author is long AAPL