It’s amazing to see the continuing inability of Wall Street to grasp the fundamental of power of Apple (NASDAQ:AAPL) products, the Apple product strategy, the Apple community and the Apple brand to satisfy immediate needs. Apple products are personal devices that are truly personal — they are your iPhone or iPad, customized with apps and email and whatever to meet your specific needs.
And the Apple community of products and services — the iPhone, the iPad, the Mac, the cloud, iTunes — all serve that same need, seamlessly. “Better, cheaper, faster” has been the mantra of tech since the invention of the modern computer. Apple has re-defined “better, cheaper, and faster” and that is why its products are on a tear, as is the company and over time, the stock.
Why have there been mixed opinions and forecasts to date, holding back a stock that is now trading earnings ratios below the S&P, even though it is growing six to seven times faster on the revenues side and more than ten times faster on the profit side than the average non-financial S&P company?
1) “The company cannot keep growth up.”
There is no data supporting that position. Apple doubled in size during the Great Recession due to the fundamental value and brand powers of its products. Recent surveys by ChangeWave Research (part of the 451 Group) tell us momentum from Q4 is coming right into Q1 — and the company said as much recently. In 2012, the company will introduce a new iPhone, a new iPad and a full blown Apple television. The power of the Apple cloud will keep people in and draw people in.
2) “Competitors are catching up.”
Seventy two percent of revenue is from iPhones and iPads. Among potential buyers of smart phones in Q1, 65% are probably going to buy an IPhone. Among iPhone owners, 94% said they will buy another one. Among Android owners, 47% said they will buy an iPhone next time around (including one of my sons). iPad sales have been so strong that unit shipment numbers of netbooks and laptops are taking big hits.
3) “Sales growth of the Mac will slow down.”
Mac sales increased more than ten percent quarter over quarter. Apple is the only computer vendor to show an increase in computer sales in the past twelve months. Change an address on your iPhone contact list and it is there on your computer without having to do anything else. Ditto for photos, ditto for music, ditto for whatever.
4)“They are saturating the market.”
Apple has less than three percent market share of the world demand for cell phones. The old 3G (the one I still use) is now free with a contract so Apple can address the entire cell phone market willing to pay for Internet access. The iPad dominates tablets — but, as sales data has shown, the iPad now competes with netbooks and low end laptops; the iPad has less than a 10% market share. Computers? Less than 5% market share in corporate markets, less than 20% on consumer markets.
5) “The stock is expensive.”
Where, on Mars? The stock, assuming $450 a share, is selling for nine times current (calendar year 2012) earnings based on my estimates, a discount to the market. Yes, a discount — the S&P sells for 12 times earnings. S&P non-financial companies will see average sales growth of maybe 5% this year. Apple will see 35% plus growth. Makes sense to me.
6) “They pay a small dividend.”
That quote was from a trader obviously born where I was in Brooklyn. And yes, the company does pay a small dividend — but the stock can pay a large dividend if you want. I sell calls against my Apple shares and the average annual yield should fall between 15% and 24% a year depending on the frequency with which you sell the calls.
Does all of this mean it is time to own the stock, or to wait? Yes. I own it, and will buy more once things settle down, and then I will start selling calls again. It has been time to own the stock for the past three years and will be for at least another three, depending on how and how fast it moves.