Thursday, September 16, 2010

AAPL update -- still looking good


Apple (AAPL) is on track to post a new closing high today, so I thought I would celebrate that and reiterate my view that AAPL is still an attractive stock to own. I've been recommending AAPL repeatedly since my first post on the subject in Oct. '08, and I've owned the stock for almost 10 years and still do.

Apple's success lies in its ability to innovate and to use industrial design to make complex computers easy to use. Its products are beautiful and reliable, and its software is well-thought-out. Apple is arguably the only computer electronics company that has the capability to innovate in more than one area, and it has expanded its product line impressively over the past several years. Its market share is very strong in smartphones and mp3 devices, and it is steadily gaining market share in the laptop and desktop area. Apple's market cap has surpassed that of Microsoft, and for good reason. Microsoft is a one-trick pony that long ago lost the ability to innovate, and it's products and software appear to be designed by engineers rather than by artists and industrial designers.

An article in today's WSJ reminded me of my recent trip to Best Buy (BBY), in which I took three Argentine friends there so they could buy some cameras and computers. Argentina has virtually no Macs—everyone uses PCs, and the great majority of the PCs run the now-obsolete Windows XP. I showed them the Macs we have at home, and encouraged them to upgrade to a Mac laptop. They were reluctant however, since none of them had much computer expertise. What would they do if they ran into a problem?

The one thing that piqued their curiosity, however, was the iPad. They were entranced by its magic and simplicity. I used the iPad to show them our photos of Africa, and then I pulled up a map of California so they could plan their trip to San Francisco. Scrolling around the map, zooming in on details, flipping through photos, all accomplished with a single finger. "Does this map program come with the iPad? Will it work in Argentina?" they asked. Yes, I replied. "Can I do email and internet on the iPad?" Yes, I replied, and it's quite easy. You really can't screw things up, because all you need is a finger. No file system, no launch commands, no ability to push the wrong button. There's only one button in fact, and it always takes you back to home base. No moving parts. Sold.

After almost three hours of haggling with a very patient and spanish-speaking Best Buy employee, they loaded up their shopping cart with two iPads, two Canon SLRs, and an assortment of lenses and accessories. To my surprise, they even negotiated a 20% discount on the accessories. While they were checking out (around 3pm on a weekday) I noticed that the store was unusually full of customers, and there were quite a few standing in line. It's purely subjective on my part, but I think that Best Buy has really filled out their product line and has learned how to sell things much better than it did just several months ago. Now, as the article mentions, they plan to sell iPads at all their stores, not just a select few. There's potential here for BBY to do quite well as the economy improves..

As the article also mentions, according to Best Buy's CEO Dunn, "internal estimates showed that the iPad had cannibalized sales from laptop PCs by as much as 50%." That's the thing that has always sustained my belief in a bright Apple future: Apple's ability to gain a significant share of the gigantic market of Windows-based computers.

12 comments:

John said...

AAPL speaks for itself but I would say I agree Best Buy (BBY) would be a good way to invest in an economic recovery that will likely slowly build as we go into 2011 and beyond. The stock sells for about 10.5X estimated 2010 earnings of $3.50 per share and pays a dividend of $.15 per quarter for a yield of about 1.6%. The payout ratio is a very conservative 16% of earnings so it is not only pretty safe but there is room for increases over time. Debt is 17% to capital (low IMO) and the company consistently earns a respectable 17 to 20% return on employed capital. Return on equity capital is consistently above 20% (the exception was 2008 when it earned 19.3% ROE).

This IMO is another high quality, well managed stock thrown out the door in the investment world's stampede into bonds. IMO patient investors may get shares cheap now. I believe BBY will make very good returns over time for buyers near today's levels.

David M Gordon said...

I thought I would celebrate that and reiterate my view that AAPL is still an attractive stock to own. I've been recommending AAPL repeatedly since my first post on the subject in Oct. '08, and I've owned the stock for almost 10 years and still do.

Scott,

I was there when, throughout the lean years of 2003, 2004, and 2005, you recommended strongly investing in Apple/AAPL.

Everyone scoffed, me included. How easy it was to scoff, too; we all 'knew' the market was going to plummet any day now beneath the 2000-2002 lows, and Apple was sinking into oblivion. Your recommendation was before the iPad, before the iPhone, and VERY early in the iPod craze. DELL owned the pc market, and all systems purchased were "Wintel". But you knew something, way back before anyone, and remained staunch and forthright, and held through thick and thin.

In this day and age, when everyone claims investing genius, albeit always retroactively, I want to remind people that you were there then, when no one else saw the truth and beauty... and opportunity. Just as you are today.

Thank you.

John said...

I would guess the only sectors more hated than semiconductors are maybe financials and homebuilders, but last night Texas Instruments (TXN) announced great earnings. They also announced a dividend increase and a share buyback. Some of us have been commenting on these corporate decisions recently and this gives those interested an opportunity to watch the market effects of the actions. TXN's biggest allotment was clearly to the stock buyback...it amounts to nearly 25% of the outstanding shares. To me this says the board believes the stock is dirt cheap. If the stock were believed to be fairly valued, I think it would make more sense to return the capital through higher dividends.

Scott Grannis said...

David: Thanks for your kind words. I only wish there were another Apple out there that had as much potential as Apple has realized.

Scott Grannis said...

John: I agree with you on the equity buybacks. That is a very strong statement coming from management about the value of the stock, and it jibes with everything I see, namely that stocks are undervalued.

John said...

Scott,

Thank you. Congratulations on your AAPL call. Owning great companies like AAPL over long periods of time is a proven way of building wealth.

Again, allow me to be thankful here publicly for sharing your substantial talents with those of us less so.

Bill said...

Scott and John,

Do you think the drop in consumer sentiment will be a signal for a big sell off today? I've read something about how important it is for the S&P to breach a certain level in order for the bulls to take control. Can't say I understand it much.

Scott Grannis said...

I'm not a technician, but from what I've seen I think the market is passing through the levels considered to be bullish. Technical traders are probably going to be buying pretty soon.

Confidence is a lagging indicator and I've never seen it move the market. Besides, the number came out over an hour ago and now the market is up.

John said...

Bill,

Consumer confidence is a 'soft survey' indicator. I have usually used it as a contrary one (bad numbers are good for the market and vice versa). It will be time to worry when everyone is happy.

The market is due for a rest/consolidation period IMO. If it does so, it will not be because of consumer confidence numbers. I would rather rely more on hard data points (as Scott is continually posting) than a soft survey.

Just my cheap opinion.

Wealth said...

AAPL Stocks are looking good. I personally don't own any yet but I am highly considering it. This company is performing solidly and has produced so many great new ideas within the past 5 years. I can't wait to see what Apple will do next. It's great to hear all your comments here about what you think of this company.

Please feel free to check out my blog and post some comments at http://www.wealthvest.com/blog/

Thanks everyone

Daniel said...

Scott, you've helped me make a small fortune from just 1 stock. Thank you, Amazing. I saw the run from $100 to $200 in 2007 and kicked my self for not getting in. Then saw it drop back down to $120 in early 2008, and I remember telling myself "now I should get in" but I hesitated and missed the run AGAIN to $190. Then the Market crashed in 2008, and it dropped again back to <$100. and I told my self "Its Apple, there is no way its going to $0." So I got my chance again (for the 3rd time) and finally got in at the $100 level. Although this time I got the crap scared out of me because it eventually dropped to the high $70's. But patience is a virtue, and after the March '09 lows I finally started breathing a bit easier.

Now this stock is my cash cow, money tree, bucket at the end of the rainbow and I am definitely still in it for the long run. However, I am jumping in and out of it for the last year and a half and recently been trying to take advantage of the volatility.(but missed most of the swings from this summer) Selling at $150, buying back in at $140, selling at $180, buying back at $170, sell $210, buy $190, etc. etc...(not exact numbers, but you get the idea)

I've always liked the mommentum of this stock. Its truly amazing. And most of the moves this year have been without the Ipad. Can you imagine when ipad hits critical mass? It just released TODAY internationall. We wont even know the true numbers this company can really make until everyone has one of their products.

Stock is at $275, and I am by no means a stock technical analyst, but I have a feeling it is still very cheap. Heck the stock was at $200 without the Ipad, iphone, cool ipods back in 2007. And now its only at $275, with all these great innovations??!?!? skys the limit.

Anyways long story short, THANK YOU!

Oh, and John check out an awesome semi company: Skyworks Solutions (SWKS) another awesome stock. They make power amplifiers found in the iphone/ipad. And has not gone down with all the other Semis out there. Ill be buying more of this one if it ever drops :)

John said...

Daniel,

Congrats on your success with AAPL. It shows that someone with an open mind and willingness to accept some volatility and patience can still do well if they do their homework. One need not accept the index averages. There are many, many paths to higher returns. Usually, not always however, an optimistic outlook is a big advantage.

Skyworks (SWKS) is what I have called a 'piggyback' investment in that they are a supplier to a rapidly growing company. The chart on it is awesome. You have obviously identified another winner. Very good example of an alert investor, doing his homework, accepting some risk, and reaping some very nice returns.