Apple Inc. (NASDAQ:AAPL) stock has been one of the hottest names in the market for years now, and ever since a guy named Steve Jobs returned to the Cupertino company in 1997, Apple has been synonymous with innovation.
Over the past few months, I’ve been openly cynical about AAPL stock, questioning the validity of its 40% run-up in the last year. (It’s up even more than that after a blowout first-quarter earnings call yesterday). But, clearly, I was wrong.
Horribly wrong.
Before I tell you how you were right all along and AAPL stock is a screaming buy, let me tell you why I was bearish to begin with. The best way to improve as an investor is to learn from your mistakes, and that requires a degree of honesty, however painful that may be.
My (Weak) Bear Case for AAPL Stock
In my ambitiously titled article, “Apple (AAPL) Stock: The Glory Days Are Over,” I listed three main points that supported my thesis: I believed the Tim Cook era was destined to bring about the end of Apple’s global powerhouse.
- Apple products looked somewhat virus-prone. Citing the discovery by Palo Alto Networks Inc (NYSE:PANW) of the WireLurker malware, I condemned the perception of Apple products as impenetrable, elite machines and bewailed their vulnerability.
- The AAPL product lineup was deteriorating in quality. The plastic, $99 iPhone 5c and the Apple “Bendgate” controversy were fingered as obvious examples.
- Apple’s precious software was also beginning to fail. Citing a botched rollout of its iOS 8 update and the infamous Google Inc (NASDAQ:GOOG, NASDAQ:GOOGL) Maps debacle, the end was nigh for AAPL stock.
Not satisfied with that thorough indictment, I went on to call AAPL stock a ripoff, saying that its rapid growth was unsustainable. I dismissed a Susquehanna analyst’s iPhone sales estimate for the first quarter (between 60 million and 65 million units) as “gaudy.”
Where AAPL Proved Me Wrong Yesterday
Where to begin? Consumers were clearly not turned off by the concerns I had about AAPL viruses, product quality and software. The WireLurker threat ended up being short-lived and obscure and the recent iPhone models sold like snow shovels on the eve of a blizzard.
So much for those gaudy iPhone sales estimates. Instead of 60 to 65 million units, AAPL moved a whopping 74.5 million iPhones, driving revenue growth of nearly 30% year-over-year. Unapologetically explosive EPS growth similarly made me look like an idiot, as a 47% jump put its quarterly profits at $18 billion, a record for any public company.
Boy, did I screw up.
Forget everything I’ve said previously about AAPL stock. It’s still a buy. It has been for years. Its brand is one of the most powerful on the planet, its ecosystem retains customers and encourages repeat purchases, its App Store commands the attention of developers, and its looming creation of new form factors with the Apple Watch should formally usher in the age of wearables.
I’ll keep an eye on its valuation. But right now, it looks OK to me.
As of this writing, John Divine owned shares of AAPL, GOOG and GOOGL. You can follow him on Twitter at @divinebizkid.
