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I am the principal at Sawtooth Capital Management, LLC, which is a registered investment advisor in the great state of Texas. After graduating with my MBA I went to work in the oil and gas business as a financial analyst and business manager. I've also started and sold several businesses. I'm a... More
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Sawtooth Capital Management, LLC
  • IWatch May Be Just In Time For Investors 0 comments
    Mar 6, 2013 2:02 PM | about stocks: AAPL

    Few topics of discussion elicit a more passionate debate than Apple (NASDAQ:AAPL) , its products and stock price. What really gets people talking is the release, or even more excitedly, the rumored release of a new product.

    The latest product to whip up this conversation is the rumored iWatch. What will the iWatch do for Apple's stock price? What type of margins will an iWatch contribute? How will the iWatch make every other timepiece obsolete? When can I buy one? These are a few (admittedly a miniscule percentage) of the questions surrounding the iWatch. I think most of these questions miss the boat. While the iWatch's contribution margin to Apple's financials and its impact on the stock price may be important, the real question is what will the iWatch do holistically for Apple?

    I must admit, I am a Google (NASDAQ:GOOG) android mobile user. I do have an Apple iPod Nano and I also use my wife's iPad from time to time. I know many end users that inhabit these two worlds, oscillating from iOS to Android. The iWatch could play a strong role in increasing the value proposition to users of competing products (let's be honest-Android) and make a strong case for adopting Apple products such as the iPhone. One could imagine a world where iWatch, a seemingly innocuous product, tips the scales in Apples favor. Let me give you an example. I'm riding on the bus/subway and listening to music on my iPhone (like I said I have an Android phone, but in this imaginary world the iWatch made me run…nay sprint to my Apple store to buy all things Apple). My iPhone is tucked deep in my pocket when I get a phone call. Instead of doing the seat dance to retrieve my phone from my pocket I simply look at my iWatch which displays the caller's information. I can choose to answer or ignore the call with a swipe of my watch. After ignoring the call, a song I don't really care for begins to play through my headphones. Instead of doing that same awkward seat dance to fast forward, I swipe my iWatch to go to the next track. The point is this; the iWatch has the possibility to extend the user interface of the iPhone beyond the phone's screen. Add in some of the features that have been speculated, such as heart monitoring and pedometer, and the iWatch may be a quiet revolution in the mobile device market.

    With Apple's stock price near a 52 week low, the coming iWatch may be a good reason to take a "long" look at Apple shares (one may also wish to consider factors such as dividend yield greater than 2%, p/e below 10, well over $100 billion cash on hand with strong growth in CF from operations, etc.)

    Will the iWatch revolutionize the watch/mobile market? Maybe. The iPod surely revolutionized the portable music player market. The iPad revolutionized the tablet market. Apple has demonstrated it doesn't need to be the first product released to win the category. The Sony (NYSE:SNE) Walkman came out decades before the iPod. Try to buy a Walkman lately? Through their product features and superb marketing, Apple impacts consumers arguably better than any of its competitors. Features and benefits of Apple products are communicated clearly to consumers, which contributes to wide-spread product adoption. Case in point, Apple's "Siri" versus Samsung's "S Voice"; don't know what "S Voice" is? Exactly.

    Will the iWatch have people looking at their watches nonstop instead of their smart phones? We'll just have to iWatch and see (ouch - sorry about that, I needed an ending for this article).

    Disclosure: I am long GOOG, AAPL. 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: AAPL
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