Seeking Alpha
Profile| Send Message| ()  

By Renee O'Farrell

Cable television is sort of a racket if you think about it. You pay as much as $150 a month for access to all these channels even though you can realistically only watch a handful at any one time. Companies like Netflix (NFLX) and Hulu, a collaboration between Fox owner News Corp. (NWS), ABC and ESPN owner Disney (DIS) and NBC Universal owner Comcast (CMCSA), hoped to offer an alternative to that, providing viewers with on-demand content for a small monthly price.

However, these companies only license the content and manage subscribers - they don't make the technology subscribers use to view that content. In the case of Netflix, the company doesn't even host its streaming service; it outsources that job to Amazon (AMZN).

Rumors have been circulating for a while that Apple (AAPL) may up its game with Apple TV, which is effectively a technology that allows users to stream media purchased from Apple iTunes as well as the content available on a few select services like Netflix, YouTube and Apple's iCloud. Rumors abounded on Tuesday May 15, that Apple was in talks to start offering authenticated access to ESPN's WatchESPN service.

These weren't true, but that is not to say that it couldn't happen. ESPN has deals in place that allow subscribers to view its content on iPads and iPhones. "We're a platform-agnostic content company," said ESPN vice president of affiliate and advertising sales Sean Bratches. "To the extent that in the future there's an opportunity with Apple to authenticate through the pay-TV food chain as we're doing with Microsoft, that's something that we will participate in." While no deal is imminent between Apple and ESPN, that line of thinking could mean that Apple will have a much larger role in digital television going forward.

Apple has already proven that it can infiltrate an industry and gain ground. Its iPod completely dominated the mp3 market for years and its iPhone has firmly unseated Research In Motion (RIMM)'s BlackBerry phones from their lofty position. Apple's MacBooks are rapidly stealing market share from personal computer makers like Dell (DELL) and Hewlett Packard (HPQ), and the iPad is pretty much the dominant tablet right now. Why not television?

An iTV could be in the works - a flurry of speculation was set off on mid-May after Foxconn, one of Apple's main manufacturing providers, was believed to say an iTV was in the pipeline. Foxconn said its remarks were wrongly interpreted, but that doesn't mean an Apple iTV is out of the question, even if it isn't a stand alone set, but rather a more developed network of authenticated content on the existing Apple TV framework. After all, for the money spent in developing and storing television sets, Apple could buy more quality content, attracting more users in the process.

David Einhorn's Greenlight Capital certainly seems to be betting on Apple. According to its first quarter 13F, the fund had $876 million invested in Apple at the end of March, or roughly 10% of its assets under management. At the Ira Sohn Conference Einhorn said that Apple could be worth $1 over the next few years. The company is also popular with Ken Griffin's Citadel Investment Group, David E. Shaw's D E Shaw and Rob Citrone's Discovery Capital Management.

The thing about Apple is that no matter how you look at it, it is a good company. It is priced low. At $553 a share, it is trading at just 10.26 times its forward earnings and is up 36.59% year to date. Over the past five years, Apple's earnings have increased by an average rate of 64.95% a year. Going forward, analysts estimate that the company will have an average earnings growth increase of almost 19% a year for the next five years - that is almost double what is expected for the market.

I recommend buying Apple while it is priced so low and hanging on for the ride. There are many ways things could go for this company but all roads seem to lead to profit, at least for now.

Source: Personal Computing Isn't Just About PCs: Video Is King