There’s no denying that Apple is one of the big corporate success storys of the last 10 years. 2011 however saw the death of it’s iconic leader and CEO Steve Jobs. How will this affect the company? Is it still a good investment?
In this post I’ll set out 7 compelling reasons why you should still invest in Apple stock.
1. Stick to What You Know
Warren Buffet is often quoted as saying he only invests in companies he understands. I try to follow the same advice and my investment in Apple is a great example of this. I’m a big believer in the products that Apple produces, which helps me buy into the future stock value.
I believe in investing in companies I can see are doing well, not just relying on technical analysis, financial ratios and research analysts to pick winners. Everyday when I get on the train to go to work i’m amazed at how quickly apple products are being adopted by those around me. It seems like more and more commuters are sitting there every day pulling out not just their iphone’s (long the commuters phone of choice) but also their iPad’s and MacBookPro’s. I often see people with all three, and not just young techie geeks like me, even the pensioners are getting Apple’d up!
2. It’s Recession Proof
Ok, no company is recession proof however Apple should weather a global recession better than most. Most of it’s revenues come from the premium end of the market, which by default has a higher disposable income than the lower end. This higher end is more likely to keep buying shiny new iPads and iPhones despite the global recession.
3. Apple isn’t a Cult
I held off from buying Mac for many years. Despite various friends and colleagues eulogizing about how good Apple products were I dismissed them as tools of the Media industry cult. Being quite tech savvy I resisted and stuck with my windows machine. Once I purchased an iPhone 3G, I started to think a bit differently, not only was it a beautifully designed machine, it was incredibly functional.
After finally biting the bullet on a Mac Book Pro, I will never go back to Windows. I’ve recently replaced my PC with a Mac Mini and also acquired an iPad and I doubt i’ll ever own a Windows machine again. I’ve yet to meet someone who’s gone back to Windows after trying Apple.
4. Up sell and Lock Down
Apple is taking some key features of it’s mobile operating system iOS and embedding them in it’s Mac operating system Mac OS. Key to this is the concept of the App Store whereby all iPhone and iPad users have to buy all software/apps through the store. This software selling model has two big benefits for Apple:
Firstly it means Apple gets a large slice of every app sold. Developers hate it but Apple of course doesn’t care.
Secondly it means Apple can control what apps or software get installed on our devices. This means all software get tested and has to meet Apple’s standards which means Apple can ensure most users get bug free (as far as possible) and stable virus free software which will hopefully avoid the crashes and slowing down of hardware that windows machines are now famous for.
Apple recently released the App store to Mac OS and I believe has the aim to get it’s Mac users to a state where all software is locked down and purchased via the app store. This can only mean more revenue and profit for Aple in the long run.
5. Product Life Cycles
I believe Apple’s iPhones and iPads are still i the early phases of their product life cycles. If you look at what Apple did with the iPod it initially released it as a high end luxury item in 2001 targeting a small premium market with high prices. It wasn’t until 2006 that it released the iPod Shuffle which was aimed squarely at the lower end mass market with limited functionality and affordable prices.
The above strategy was simple. Establish the brand as a desirable, premium product that everyone wants and only a few can afford. Refine the product, supply chain then release a mass market version and dominate the market.
While it already dominates the top end of the smart phone market I don’t think it will be long before Apple releases a ‘iPhone Lite’ aimed at the mass market, the one that manufacturers like Samsung and HTC are dominating. The potential there is huge, especially when you consider the huge growing demand for Smart phones in the Emerging Markets. When it does this, I believe consumer demand will guarantee a massive boost in revenues for Apple, raising the stock price in the process.
6. Apple’s Cash Mountain
Another compelling reason to like Apple is it’s huge cash pile. At last count it had over $80 billion squirreled away in cash or short term marketable securities. This is a huge amount of money and a figure that is growing quickly.
What will Apple do with all of this spare cash? Well there are two main options:
i) Start paying dividends to shareholders – great for existing shareholders
ii) Make a huge strategic acquisition, possibly of a competitor. Regarding this second point I have a theory that the company might have it’s sights set on Google. It’s current Market Cap is $200 billion. The late CEO of Apple Steve Job’s hate of Apple was well documented in the media and I have a theory that the companies aim is to swallow up the search engine giant it believe stole it’s software with the release of Android.
7. Future Product Releases
So what next for Apple? I believe it’s next big product will be related to TV. It has experimented with the Apple TV, and helped users build home media centers by incorporating HDMI ports onto it’s Mac Mini devices.
I think Apple has probably realized that now domestic broadband speeds are capable of streaming HD quality video (ok, not everywhere but we’re nearly there) and it needs to be there with a kick ass product that’ll make it easy and pleasurable for us to access the TV, video and Internet we want to from the comfort of out sofas.
The company has a great track record of creating devices that blend internet and media on non ‘computer’ devices (think how the use off apps merge the internet with our smart phones and tablets) so I’d be amazed if they didn’t do the same for televisions in the next couple of years.
Summary
I initially bought Apple back in December 2009 just before it launched the iPad 1. Since then the share price has more than doubled to it’s current level of $424.70. At this level I still think the stock is a buy for the reasons set out above. I think the prospect for further growth or big dividend payouts makes this stock a keeper for 2012, particularly as the company is still managing to raise revenues significantly despite the world wide financial crisis and threat of recession.