The King of Technology - Apple Inc. (AAPL)
This week’s investor highlight blog is on Apple Inc. Momentum Rider is dubbing Apple Inc. the “King of Tech”. It has been one of the most successful resurrections of a broken stock and company in history. Steve Jobs came back to turn his former company around in a transformation that was miraculous and extremely profitable for Apple to say the least.Steve Jobs helped Apple set earnings' records almost every quarter in the past few years. And even under Tim Cook as the new CEO, Apple has continued to thrive. Cook has been able to avoid major supply chain issues and has taken the stock from its recent low of $370 in November of 2011 to its current price of $493. And, it will certainly bust $500 this coming week.
Apple’s monster first quarter earnings report was the most profitable quarter ever reported by a technology company and the second most profitable quarter ever reported by a U.S. firm. The market capitalization is now over $440 billion and Apple is the most valuable company in the world. Apple has over $100 billion in cash right now.
At the end of 2011, Apple revealed plans to spend over $8 billion in capital spending just in 2012. Tim Cook is betting that fiscal 2012 sales will grow by $52 billion or close to 48%. That is an amazing growth rate for such a large and established company.
Apple’s mobile devices of the iPad, iPhone, and iPod Touch are still its growth engines. Their current dominance has been amazing to watch as it has unfolded over the past few years. Their superior designs and cutting edge technology have kept them ahead of everybody. It doesn’t mean that competitors won’t try to take them down, because they will. There will be new rival tablets and mobile phones with powerful core quad processors from Nvidia Corp and others that will hit the market in the next few months. And later in the year new chips will be powered by a newer version of Microsoft’s Windows software that will provide a competitive obstacle.
But Apple is still up to the challenge as they try to stay ahead with new innovations and improved functionality with every new release. And their speed to new releases is much better than it used to be in the old Apple computer days. That will be important to remain the dominant player in this very difficult and fast growing wireless mobile and multimedia consumer arena. Apple is looking forward to big improvements in their display technology this year and it is spending lots of money to get there.
In fact, Apple will probably leverage that same technology to enter into the building of television sets in 2012. Steve Jobs was reportedly finalizing a much simpler user interface for televisions that may give them an edge into this very large $100 billion television industry. There were reports that the new TVs will work with Siri-style voice commands. Just as recently as today, there is speculation that the new prototype Apple TV is already in the hands of TV makers’ hands. Discussions are going on with Rogers Communications and Bell Canada Enterprises to name just a few and it could be ready as early as 2013.
There is no question that Apple’s domination of the consumer interface for multimedia content and its move into controlling the actual content will continue to make Apple, Inc. the “King of Tech” for many years to come. The dominance it has created in streaming digital music (iTunes) could potentially happen with streaming video content as well with the right content business relationships. The new “cloud based TV service” could be launched in 2012 according to inside sources.
Apple Inc. (AAPL) is truly the “King of Tech” with a reign that could last a decade or more. The following are strong reasons that Momentum Rider believes it is NOT TOO LATE FOR INVESTORS to buy Apple, Inc. stock.
1) The recent earnings report was a breakaway gap that should have much higher to move up from a technical standpoint.
2) The valuation of Apple stock based on future earnings’ growth is still very reasonable with a PE of less than 10. That is very cheap compared to the typical PE of 15 for the market average, much less a high growth company.
3) Apple will probably use the $100 billion in cash to buy back stock and to finally start issuing a dividend in 2012. The issuing of a dividend will be a HUGE boost to the stock’s price as it increases the number of major institutions and fund types that can own the stock. More fund buying means higher prices.
4) Apple will probably do a split this year which will not only open the stock up to more investors, but most growth stocks see accelerated appreciation with splits. Getting in before a split announcement is advisable as the announcement itself generates a price pop.
5) Apple’s retail stores are the most lucrative stores per square foot in the world and they continue to open up more of their stores worldwide. Their recent entrance into China is a major step in what should provide explosive growth. The more stores that go up, the more profitable they will be as the mobile industry is still in the early stages of worldwide usage and innovation. This is especially true in the emerging market countries where they will get a critical early lead on competitors.
6) Apple’s entrance into the television and video content world could be another big game changer for Apple. While the television business itself is a low margin market, it facilitates the very lucrative video content business and it opens up their customer base even more. It will increase the whole multimedia consumer business to Apple with their full package offering and superior brand recognition. It is staggering to think of the possibilities for new revenue with the video content business. They could enter into the advertising business as well.
7) The mobile phone and streaming multimedia video businesses are still in their infancy. Apple is the leader in the mobile phone and tablet business and they will probably become the leader in the specialty TV and video content business. If Apple plays their cards right in 2012 and 2013, they will continue to be the “King of Tech”, even without Steve Jobs at the helm.
Our recommendation is to buy Apple stock whenever it has a pullback in 2012. Their best years are still ahead of them and they have a good valuation even at $500. We say long live the “King of Tech”.
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