Question: Is Apple a good buy at today's price?
When Apple (Nasdaq:AAPL) was around $78 in early 2009, $600 seemed ludicrous. Today, with Apple trading at $571 per share, analysts have to talk about $1,000 prices before charges of lunacy are tossed about. We all know how it turned out the first time; I doubt the second time will be any different. Here are six reasons I believe Apple can continue its torrid growth:
Up until March of this year, my wife never used anything but Research In Motion's (Nasdaq:RIMM) Blackberry. Then she switched jobs and now she owns two iPhones; one for business and one for personal. Blackberry is but a distant memory as she loves the iPhone and isn't going back. Many in her former situation will likely make the same decision in the weeks and months ahead as RIMM slides into oblivion. Heck, I'm not even remotely a techie and even I know the choice is between Apple's iPhone and Google's (Nasdaq:GOOG) Android. With the new iPhone 5 coming this fall - with its iOS 6 platform providing full mapping capabilities including city flyovers, a bigger screen, slimmer body and 4G LTE capability - it's going to be hard for her to resist an upgrade. These new features alone will keep the buzz alive.
The iPad continues to be Apple's fastest growing product, selling nearly 11.8 million units in the second quarter alone. With the iPad 3 being equipped with a retina display that quadruples the number of pixels in the same space, the enthusiasm for its latest gadget is only going to pick up speed. Add to this the Chinese government approving the sale of the iPad 3 in China and it's full speed ahead for Apple's growth in the tablet space.
SEE: A Primer On Investing In The Tech Industry
Ever since Steve Jobs died and Walter Isaacson's biography of the Apple co-founder came out, the rumors have been fast and furious about an Apple-branded television. Nothing's come out of WWDC that would indicate its delivery is imminent. However, analyst Brian White of Topeka Capital Markets suggests it will provide different ways to interact with your TV, including the use of motion detection. The retina display on the iPad 3 and MacBook Pro will be the testing ground for larger Mac desktops and eventually the Apple television. If Apple can figure out how to get rid of the dreaded cable box and keep the cable companies on board, this could be a huge revenue generator.
China generated $12.4 billion in the first half of fiscal 2012 and the country is the company's second biggest market behind the U.S. In fact, revenues for all of Asia/Pacific passed European revenue for the first time in Q2. Europe's sales in the second quarter were 25.3% of total revenue compared to 28.1% in Q2 2011. Most probably look at this as the glass half empty. However, I see this as an opportunity for its European business to continue to surprise. In the second quarter its revenues increased 46% and operating income 52% year-over-year. Given the state of the European economy, if it can deliver anywhere close to these numbers in future quarters, this will have an incredibly positive affect on the stock price.
At WWDC, Apple came out with Passbook, an application that allows customers to use their Starbucks (Nasdaq:SBUX) card and other closed loop systems to pay for merchandise. Where this goes in the future is anyone's guess but it's clear that Apple intends to make its phones a big part of the mobile payments business. With a lot on its plate, it's probably content to test Passbook until it figures out the next move. Ultimately, it will have a mobile wallet that works, giving those of us who've yet to join the iPhone nation another reason why we should. Ka-ching!
Apple begins paying a quarterly dividend of $2.65 a share in the fourth quarter starting July 1, and it will initiate a $10 billion share repurchase program in October. While the estimated $45 billion it will distribute on these programs sounds like a significant number, it's really not. The significance of the move isn't the number itself but the fact it did something to attract income investors into the fold. I wouldn't have thought it was possible for Apple to increase the daily volume in its stock, but that's exactly what will happen once the dividend tap opens. To what extent the dividend influences its future stock price is difficult to predict, but it likely can't hurt.
SEE: Why Dividends Matter
The Bottom Line
Scott Sutherland, Managing Director of Equity Research at Wedbush Securities suggests that Apple is trading at less than 10 times earnings if you exclude cash and use its fiscal 2013 earnings per share. In my opinion, the arguments for its stock price reaching $1,000 within the next two years are far too compelling to avoid. It won't happen next week, but I believe it will happen and likely sooner than you think.
At the time of writing, Will Ashworth did not own shares in any of the companies mentioned in this article.
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