Thursday, August 25, 2011

While I still like AAPL

This chart may be the best monetary testament to the greatness of Steve Jobs, who already can claim to be one of the most outstanding entrepreneurs and business leaders in history.

As my many posts over the years on the subject of Apple will attest, I'm just as sorry to see him forced to retire as anyone, but I do believe that he has created a culture of excellence at Apple that will endure. His health was obviously not improving, so his resignation was probably inevitable, and therefore it is reassuring to see that AAPL is down only 1% today. The best part of the news of his retirement was what Apple's board did NOT do: they didn't appoint an outsider to succeed him. Tim Cook was the obvious choice, and they got it right.

I'm among those who believe that AAPL is still an attractive stock to own. Apple holds a commanding position in a dynamic and expanding industry, and is a proven innovator. Are there any serious competitive threats out there? None so far that I have seen. Google's Android has captured a significant share of the smartphone market, but to date there has been no credible threat from an Android tablet. Android suffers from a significant flaw, since it is virtually impossible for one company to write software that is dynamic, flawless, and competitive on the products of multiple other companies—that's the same source of Windows' ongoing loss of market share to Apple's OS. Nevertheless, it's a good thing there is an Android OS, otherwise the government regulators would likely be attacking Apple for wielding monopoly power.

Despite its incredible growth to date, Apple still has only a relatively small share of the personal computer market, and that is quite likely to expand indefinitely. And although Apple has a large share of the smartphone market, it has only a tiny share of the global mobile phone market. Sooner or later, the vast majority of the world's 4 billion cell phones will be smartphones, and that is where Apple has plenty of room to expand further. At the same time, the tablet market is growing like Topsy, and Apple is almost sure to maintain a huge share of that market. And should Apple once again manage to create some entirely new kind of technological marvel, well, then the sky's the limit.

With all this potential growth in store, AAPL is only trading at a 14.7 multiple of trailing earnings, and a 13.5 multiple of expected earnings. In other words, the market is plenty cautious about Apple's ability to continue to grow at above-average rates. Since I don't see a credible threat to Apple's ability to expand significantly, then I'm comfortable holding the stock.

Full disclosure: I am long AAPL at the time of this writing and have no plans to exit this position.


Benjamin Cole said...

What a fantastic company and man. This is what the private sector can do.

That said, I am cautious now about Apple. Inevitably in that market segment someone newer, more active and fresher will come along. They won't want to work for Apple. said...

My wife just initiated a first time position in AAPL. Hopefully, it still has some juice in it!

David M Gordon said...

"I'm among those who believe that AAPL is still an attractive stock to own."

This must be one of the most laugh-out-loud funny sentences ever, Scott.

Your humble approach in this post does you, and your readers, a disservice: it pays for them to heed your advice:
"Since I don't see a credible threat to Apple's ability to expand significantly, then I'm comfortable holding the stock."

Your remark above is tantamount to BUY AAPL! -- even at its current seemingly lofty price levels (see your chart above) but extraordinarily cheap valuation.

For the record...
- You have been a bull on Apple's products since Day 1, almost proselytizing for their elegance. This in the face of widespread disregard for the products being only for a select few.
- You have been bullish on AAPL as an investment for the past 10 years, perhaps longer. Your original recommendation marked the optimal opportunity - lowest price, most reward - but you have reiterated that recommendation over the intervening years.

Other market commentators, me included, claim braggart rights as the first to recommend, but you actually have been there, in your many public and private comments.

Moreover, and despite the chart that begins your post, you provided sound reasoning as to why Apple/AAPL represented itself as an excellent investment opportunity.

Thank you.

PMC said...

Well done David.