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Jacob Steinberg
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I mainly focus on two sectors: technology and auto industry. I am long only and I like to take a conservative approach where I sell covered calls on the shares I hold in order to reduce my risks. Some of the stocks I follow closest are Nokia, Microsoft, Ford and Apple. I believe that being able... More
  • Apple: IPhone 5S Is Selling Like Hot Cakes 0 comments
    Sep 23, 2013 5:29 PM | about stocks: BBRY, MSFT, NOK, AAPL

    On Monday morning, Apple (NASDAQ:AAPL) announced its first weekend sales figures for the newly launched iPhone 5S and iPhone 5C in an unusual move. Apple is known to be tight-lipped about things and keep things quiet with the exception of quarterly conference calls. It turns out that Apple sold far more copies of its new phones than analysts were expecting, as the company's early figures topped estimates of even the most optimistic analysts. On average, the analysts were expecting the company to sell 6 million copies, with more optimistic analysts predicting numbers closer to 8 million.

    From Friday through Saturday, Apple was able to sell 9 million units of iPhone 5S and iPhone 5C, with most copies being 5C. After all, the price difference between the two phones wasn't great enough for people to prefer 5C. Many consumers felt like they could pay the little difference and get their hands on a much better phone.

    The strong start of iPhone 5S and 5C compare nicely with iPhone 5, which sold about 5 million copies in its opening weekend. Keep in mind that iPhone 5 had supply issues where a lot of stores ran out of copies too quickly. It looks like Apple supplied stores with more phones this year than last year in order to sell as many copies as possible, even though some supply shortages were still reported.

    Also, Apple launched its new phones in many markets at the same time, which helped increase its first weekend sales. Last week, iPhone 5S and iPhone 5C were launched in the US (including Puerto Rico), China (including Hong Kong), Singapore, Australia, Japan, UK, Canada, Germany and France. This is why the first weekend sales of 5S and 5C might not be comparable to the first weekend sales of iPhone 5, but this doesn't mean that the company's strong sales figures were not impressive.

    Apple also informed the investors that its revenues and gross margin would be at the high-end of the guidance provided by the company in the last quarter. In the last quarter, Apple guided for revenues of $34 billion to $37 billion and gross margins of 36% to 37%. The higher end of these numbers would be closer to $37 billion and 37%, which is better than what most analysts expect.

    At a time when most mobile phone producers struggle to post a tiny profit, Apple continues to be a cash cow. Recently, BlackBerry (NASDAQ:BBRY) decided to lay-off 40% of its workforce as the consumer demand for its latest phones are next to non-existent. Similarly, Nokia (NYSE:NOK) agreed to sell its mobile phone division to Microsoft (NASDAQ:MSFT) for a pretty cheap fee (pending shareholder approval), as the company didn't expect to post a profit on its phones anytime soon, despite recent successes of its Lumia models. Apart from Samsung, Apple continues to be the only smart phone producer in the world that is comfortably profitable, but many investors forget to appreciate this fact and focus on this cash cow's "troubles" as if the company is going out of business.

    While the market is being pumped by the quantitative easing to infinity, many companies get ridiculously high valuations, and Apple continues to sell for a single-digit P/E (excluding its cash) in this ultra-bullish environment. Many times the analysts told us that Apple is not cool anymore and that the customers would just start replacing their expensive iPhones with cheaper alternatives from Asian companies; however, this is not happening. Even though Android enjoys a much larger global market share than iOS, it practically means nothing since Apple still claims about 75% of all profits in the smart phone market. For investors, profit share is much more meaningful than market share but they continue to ignore this. Android producers can pump the market with cheap phones all they want for the sake of gaining market share; however, investors put their money in companies to make money, and Apple is where the money is at.

    Apple has one of the most loyal consumer bases in the world and its consumers are not going anywhere. Basically, whoever can afford an iPhone gets an iPhone, and whoever can't afford an iPhone gets one of the Android phones (or a Windows Phone, evidenced by the recent surge in Nokia's market share). On a related note, Apple announced that 200 million devices worldwide has upgraded to iOS 7 so far, which marks another victory for the company.

    With its insanely low valuation (single-digit forward P/E), stronger-than-the-government cash position, impressively strong margins most hardware companies couldn't even dream of, a customer base more loyal than any company has ever seen, healthy dividend yield and giant buyback plan, Apple is a no-brainer investment. Apple currently fits every description and criterion of a good investment.

    Disclosure: I am long AAPL, MSFT. 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.

    Stocks: BBRY, MSFT, NOK, AAPL
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