So Apple Inc. (NASDAQ:AAPL) passed the $500 mark for the first time ever this month. A lot of Apple skeptics are finally coming round to the opinion that AAPL is going to keep growing for the foreseeable future.
Is Apple Undervalued At Just Over $500?
Given the fact that Apple is now the biggest large cap company in the United States having overtaken Exxon Mobile (NYSE:XOM) and yet there is still so much more potential for it to grow significantly this year and beyond, the answer would lean towards a "yes", with many analysts foreseeing at least a $550 valuation at some point this year and some as high as $600. Apple has confounded analysts time and again during its meteoric rise. Who is to say it won´t continue to do so? Of course the expected upcoming dividend announcement is likely to have figured considerably in the recent stock price rise as more investors seemingly want a piece of the Apple pie. It has grown around 20% in value in the past month alone. Another reason for this growth is the January announcement of Apple´s huge profit margins.
The immediate retort by many detractors will inevitably be that Steve Jobs, their genius, passed away last year and they will soon run out of ideas. While this argument is certainly plausible, such an occurrence would likely not happen for at least another three to five years, if it does happen.
Despite the success of the iPad and iPhone, Apple´s climb to where it is now really began to take off with the iPod. The iPod by many is seen as a glorified toy and by extension the rest of Apple´s products are too. Thus, the company is still not taken seriously by many investors. Saying that, more investors are realizing that Apple has revolutionized personal computing and indeed the way we communicate.
Reasons to buy AAPL
Something that is not usually mentioned when the list of reasons to buy Apple is rolled out is that the technology giant does not have a dominant market share in any of its markets apart from the mp3 player market (iPod). This is a significant point as it means that there is still so much room for growth in any of those markets, namely that of the mp3 player, home computer and mobile phone. Importantly, one should not forget about their iTunes store and by extension of the iPhone, the huge number of applications it sells for the iPhone/iTouch range. iTunes and Apple Apps, though not a huge part of the company´s overall revenue, should not be overlooked. They form an integral part of Apple´s marketing efforts and thus boost the company´s appeal for each and every product. Apple´s products are a powerful marketing tool for other Apple products.
The market is expecting a dividend announcement by Apple at the February shareholders´ meeting. "Apple will pay a dividend for sure," according to Michael Murphy, founder of Rosecliff Capital. Finally some of Apple´s huge hoards of cash will be redirected to the company´s shareholders.
The iPad 3 is expected to be unveiled the first week of March. Tablet computer sales are expected to explode over the next few years, with Apple in line to keep hold of at least 50% of the market share. With sales of 11.2 million iPads in the fourth quarter of 2011, unit sales will reach unprecedented levels. In the same quarterly figures announcement, sales of Mac broke records, with a year on year same-quarter rise of 26%. The only downturn was in iPod sales. However, this was inevitable given that AAPL released a newer product that has eaten into the market share of a previous product. Of course this is the iPhone. The iPod will still sell in significant numbers but much of previous sales will now be seen in the rise of iPhone sales.
More companies and government bodies are beginning to use Apple products. The recent announcement that the US Airforce may buy 18,000 Apple iPads would be a mere dot on the overall sales of iPads. However, what this does signify is that Apple is beginning to be taken very seriously in the professional world. Also, Halliburton are planning to change from Blackberry (RIMM) use to Apple. This could be very important for the respective fortunes of both companies. Not only do Apple gain a large new client but they also gain in their battle with Blackberry. Here is a recognisable name ditching a rival of AAPL´s in favour of Apple products. This transition to Apple products will likely spread among companies, increasing sales of Apple products by potentially huge numbers.
One thing that hasn´t been mentioned much in all the talk about Apple´s dominance is their adept marketing skills. The company has consistently transmitted a message that they are by far and away the best buy in each and every market they are involved in. Even looking back to their "I´m a PC, I´m a Mac" advertising campaign, they are even streets ahead when it comes to making themselves look the business while leaving their competitors trailing behind.
Add to this their Apple Stores, which is really one big marketing ploy. All their products are there to be interacted with. You just roll up and off you go. This way their products pull you in. Their help team are called "geniuses". They consistently market themselves as the best in everything they do. People want the latest gadget and when it is sold as the best and most innovative on the market, they will buy it.
If these reasons are not enough to seriously consider investing in Apple, they are launching the iTV. Though it is reported that the product will cost twice the price of its competitors in the television market, if looking at price comparison of existing Apple products compared to competitor price, the iTV will sell. Customers pay more simply to have Apple´s products.
What is relatively new to Apple, having launched in the Chinese market represents a potentially very lucrative move for Apple. The IMF predicts 8.25% growth for Apple in China in 2012.
Given the overwhelming facts surrounding Apple´s growth figures and reasons for further growth, it is highly likely that Apple´s stock price will rise considerably in 2012.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.