“Apple computers? Aren’t those for artists and graphic-design
nerds?” I asked the salesman demonstrating an early version of the
Apple Macintosh desktop computer in the early 1990s. “I need a real
computer, not something to paint pretty pictures on and design
flowers with.”
“You will understand one day, friend,” he said with a smile.
I ended up purchasing an IBM ( IBM ) desktop
and didn’t think much about Apple (Nasdaq: AAPL)
— as a computer or an investment. That is, until 2007 — when
everything changed.
But this change didn’t come from a desktop computer.
I have always had a preternatural attraction to cellphones,
particularly smartphones. My obsession started with the very first
Palm Pilot in the late 1990s and progressed through various
alternatives before moving to the once-popular BlackBerry
(Nasdaq: BBRY) series. I tried a new handset every six to
12 months.
Despite my doubts about Apple, the iPhone struck my fancy. It
rode in on waves of publicity in June 2007, and the first time I
touched it, I became an Apple aficionado for life. This phone was
not just another gadget. It provided an intuitive connection
between my mind, hand and device.
I’ve owned each generation of iPhone. They are the only
smartphones I have purchased since 2007. As a fan of the iPad and
iPhone, this former Apple skeptic has become a true believer.
Obviously, I am not the only one who feels this way: Investors
riding the mass movement to Apple’s products pushed its shares from
under $100 at the start of 2007 to $700 in September 2012. As you
can see from the chart, this trip higher was nearly straight up
without a pullback during the 2008 financial crisis. In fact, Apple
temporarily became the world’s most valuable company in 2012,
exceeding ExxonMobil ( XOM ) in
market capitalization.
But since the September highs, shares have plunged to the $425
range, with only $75 to go before a 50% value slash. What has
happened to this once high-flying stock?
The company blames a delay in supply-chain shipments and a
failure by manufacturers to keep up with demand as major factors in
the sell-off. In addition, many analysts hold the company to
ridiculously high standards of performance. Even with
record-breaking sales, analysts expect more; Apple’s recent
failures to meet their expectations have hurt its stock
price.
Apple is a victim of its own success. Although it’s unlikely the
stock will ever reach its September highs again, a 100-plus-point
recovery to the $550 range is possible.
That’s why I’ve outlined six reasons to buy Apple right now:
1. Changing perception
Due to competitive pressure and a lack of hype-inducing products,
Apple is no longer a growth stock. It is making the transition to a
value stock, hence the selling.
Growth investors are comparing future growth with past growth,
which makes future growth appear weak. The original growth
investors are selling shares in their search for the next big
thing, but value investors have not yet embraced Apple. This change
in perception may take some time, but when it does, prepare for a
rally.
2. Record results
Apple posted record quarterly revenue of more than $54 billion and
a record profit of just over $13 billion in its fiscal first
quarter. This was the result of nearly 50 million iPhones and 23
million iPads sold during the quarter — not to mention the more
than $2 billion in revenue just from the iTunes Store, with record
sales of music, apps and videos.
Any other stock would have soared on these stellar numbers. But
as mentioned, Apple is a victim of its own success, which has
brought it with unrealistic performance goals. Once long-term value
investors drill into these numbers, they should embrace the
stock.
3. Dividends
Apple produces a 2.5% dividend yield that could easily spike if
the company decides to deploy its cash hoard. Apple has seen recent
pressure from hedge-fund manager David Einhorn to release more of
this money to shareholders through a proposed high-yield preferred
stock program.
4. Cash stockpile
With its $137 billion of free cash and investments, Apple could
just about weather the apocalypse.
But the majority of these funds are held overseas, and it would
probably take a change in tax laws for them to be repatriated. In
the event of such a change, these funds could take the form of
share buybacks and dividends. That could increase share value in
the eyes of value investors.
5. Potential disruptive products
Remember, we are talking about the company that created the iPhone
and iPad. These set a strong precedent. Imagine the hype and stock
rally if Apple unveils another incredible product.
6. High margins
Apple’s profit margins are the highest in the smartphone business.
The company boasts a 58% margin, which compares with 43% for
BlackBerry. This provides a tremendous competitive advantage.
Risks to Consider: Many analysts consider Apple products to
be overpriced, with a rapidly fading “cool” factor. In addition,
the company’s market share in the smartphone category is slipping
slightly due to competition (not to mention that the original
driving force behind Apple, Steve Jobs, is no longer around to
motivate the company to new heights). Always use stops and position
size properly, no matter how much you believe in an
investment.
Action to Take –> As long as the stock
holds above the 200-week simple moving average of about $375, I
like Apple as a buy with an 18-month target price of $550 to $575.
Remember, the stock could go easily go higher if Apple introduces
another disruptive product or begins to deploy its cash hoard.
Source Article from http://www.nasdaq.com/article/6-reasons-to-buy-this-slumbering-tech-giant-cm235057
