Take A Bite Out Of Apple

| About: Apple Inc. (AAPL)

On Friday, we were told to take the money from Apple ("AAPL") and run. While I do not have any money in Apple to take off the table, if I needed to either buy or sell Apple stock come Monday morning, I would be a buyer.

Personal Experience

I have a Blackberry. My contract had ended just when the iPhone 4s was hitting the market. I decided to wait to upgrade until the iPhone 5 came out. I had read that the iPhone 5 was the last phone that Steve Jobs was involved in designing and that it was going to represent a true leap forward. Whether that is accurate or not (and we will all find out in just a few days), I thought to myself, I cannot be the only person in this position, still without an iPhone, but waiting to buy the iPhone 5. Turns out I am not. According to TechBargain, 38 percent of Blackberry owners plan to get the iPhone 5. This is on top of the 74% of iPhone 4 users that plan to upgrade. The survey also revealed the following:

The iPhone 5 is also on the shopping list of 71 percent of iPhone 3GS owners, 64 percent of iPhone 4S owners, 38 percent of Blackberry owners, and 22 percent of Android owners, all of whom plan to switch from their current handsets. The poll further discovered that 32 percent of people who don't own a smartphone will opt for Apple's next flagship phone

The market appears to be bigger than some are anticipating.

Apple's Experience

History is on Apple's side. In Q1 of 2008, Apple sold 2.3 million. In Q2 of 2008 sales of iPhones declined 26.5%. Q3 was even worse, witnessing a decline in sales of 58%. Why? Everyone was waiting for the iPhone 3G to be released. Apple released its 3G iPhone 3G at the beginning of Q4 2008, and what happened? iPhone sales jumped by nearly 10-fold during Q4 2008. I expect the scenario to play out again with the release of the iPhone 5. Not to the same degree, but still, I expect a large percent increase in sales.

In the article which told investors to take their money and run from Apple, the author posited the question "I don't know what the incentive is anymore to pay 2-3 times more for an iPhone than a middle of the road Android phone." Networld listed 5 reasons. (1) latest and greatest syndrome; (2) sick of upgrades; (3) interface; (4) cloud; and (5) 4G. For me, numbers 3, 4, and 5 all apply.

Apple's Advantage

Apple's real advantage lies in a combination of factors 3, 4, and 5 listed above which when combined form part of Apple's ecosystem. I have a Mac and an iPad. The two devices work seamlessly together enhancing my experience with both. My current Blackberry doesn't work with either. Why would I purchase an Android phone only to experience the same problem? The same rationale applies for my next tablet and home computer purchases as well.

As summed up by another Apple user:

I recently stepped outside the cozy Apple ecosystem and purchased an Android phone, the HTC Desire. It was on sale at a steep discount, and I thought I would be able to integrate it into my work/life flow. I was wrong, and the phone is being returned.

This ecosystem advantage has only been enhanced since the launch of iCloud. Now, if you are living within the Apple ecosystem, you can use the iCloud to back-up and restore data on your Apply operating devices. The iCloud allows daily backups of consumers' iPhones, iPads, and iPod Touch devices when they are connected to the internet via wifi. So, again, once you have one Apple device, the reasons to purchase another just got greater.

This is why Apple has the capacity to be a growth stock for years to come. As explained by Tim Cook Apple's CEO, the iCloud is not just a product, it is a strategy for the next decade. It is also one of the reasons I will buy an iPhone and not a run of the mill Android phone. It is the reason consumers will buy the next iPad instead of a kindle and it is the reason consumers will continue to buy Macs.

Not To Mention The Attractive Valuation

Apple will spend approximately $45 billion on dividends over the next three years. Currently Apple is paying a dividend of $10.60 per year which at current prices is approximately 1.6%. Not great for dividend hunters, but money is money. Apple will also repurchase up to $10 billion in shares over the next three years. start a share repurchase program in the company's fiscal 2013 year.

Apple is currently trading at Median P/E of Current Year Estimates of $15.43 and a Median P/E of next Fiscal Year Estimate of $12.82.

Amazon ("AMZN") trades at $318.20 and $108.59 respectively;

Google ("GOOG") trades at $16.34 and $14.07 respectively;

Microsoft ("MSFT") trades at $10.28 and $9.41 respectively; and

Cisco ("CSCO") trades at $10.14 and $9.44 respectively.

So, Apple is far from overvalued. Psychologically, it may be hard for retail investors to buy Apple at this time. They look at the most valued company in the world trading at all-time high prices and probably think to themselves that the stock has nowhere to go but down. The truth is Apple can be a growth stock for years to come. Investors will never make the 100 times returns that early Apple investors may have made, to make that much money they need to invest in the next Apple, not the current Apple. However, that does not mean that Apple does not have a place in a lot of portfolios.


Personally, I am not buying Apple stock as it does not fit into my investment strategy. However, if I owned Apple stock, I would feel comfortable holding.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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