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10 Reasons To Buy Apple Now

17 November 2008 4 Comments

As I’ve stated many times, I love following Apple. I believe there are a number of factors that warrant a immediate buy of Apple’s stock right now. Without wasting anymore time, let’s get into the reasons.

1. “Real Earnings” Are Not Being Factored

There has been a ton of fantastic analysis on the web regarding the GAAP vs. non-GAAP revenue and earnings reports in the last few quarters for Apple. The reality is that the official numbers Apple releases do not recognize significant sales and cash in-flows. It seems that most analysts are not factoring in the real earnings of Apple. I am not going to go into tons of analysis here because it has already been done in detail at the below links:

http://www.appleinsider.com/articles/08/06/25/the_hidden_financial_impact_of_apples_iphone.html

http://seekingalpha.com/article/101439-apple-s-real-earnings-up-almost-125

2. Yes, Your BlackBerry Can Play Music, But It Doesn’t!

My favorite thing is when somebody I know compares their smart phone to my iPhone by saying, “Yeah, my phone plays music and videos too”. Then I always ask, “Do you listen to music and watch videos on your phone.” The answer is almost always no. Why is this?

The reason is because the ease of use and simple integration with iTunes and computers compared to non Apple products. Apple has a supreme advantage of having millions of users already familiar with their products making the learning curve on the iPhone very minimal. Most Blackberry users do not use the phone for much more than email and some web usage. The iPhone might not offer significantly more functionality but it offers the ability to take advantage of all of its functionality with extreme ease. This is one of the biggest reasons why the iPhone is so popular.

3. New (And Stronger) Halo Effect

Much has been said about the halo effect of Apple when iPod users get used to using an Apple product then eventually by a laptop or other Apple product. Well, this will also apply to iPhone users and to a stronger degree. The iPhone will sell many people on Apple products.

4. Who Said Retail Was Struggling?

At a time when retailers are getting annihilated, Apple is expanding their retail presence. Best Buy, Macy’s, and others are reporting terrible numbers and guidance. Other retailers like Linens n Things and Circuit City are closing their doors. Expansion is the last thing on most retailer’s minds. Yet, Apple is forging ahead opening new stores in more cities. Do you know who the number one retailer is based on sales per square footage? It’s Apple, just ahead of Tiffany’s.

5. iPhone: Recession Proof Product

I mentioned in a previous article on Apple that I think the iPhone is as close to a recession proof consumer gadget as you can get. Cell phones are no longer a luxury but a necessity and more and more people are upgrading to smart phones. At $200, an iPhone is not an unreasonable buy. LCD TVs, new laptops, new furniture: definitely not recession proof. A $200 iPhone for someone looking for gaming, a cell phone, and a music player? Much more recession proof.

6. Cash Is King

As many Apple investors know, Apple’s balance sheet is bullet proof. They sport over $25 billion in cash. Credit crunch, lack of liquidity… irrelevant to Apple. They can continue to finance growth and innovation with their own cash reserves.

7. Innovation Continues

I have heard one analyst say that Apple is continuously one year ahead of its competitors in terms of innovation. You need to not look farther from the iPhone and the flurry of “iPhone killers” that were released a year after Apple came out with their cell phone. When the iPhone killers (yeah right) hit the market, what was Apple doing? That’s right, coming out with the second version of their iPhone.

Other innovation includes the unibody engineering of the new macbook line. Sure, this isn’t a game changing innovation, but what other companies are innovating the way they produce laptops these days? Dell?

With Apple’s acquisition of a chip maker, it will be interesting to see if they begin building their own chips for their devices to prevent others from “copying” their innovations.

8. Valuation

Apple’s shares have been battered this year. Down from over $200 a share, the stock currently sits just over $90 a share. I believe that Apple could very easily beat earnings estimates over the next few quarters (which should be the deepest point of the global recession) which could cause the stock to rise significantly. If Apple beats these estimates during a recession, what do you think they will be doing when the economy bounces back? Yikes!

I think Apple represents one of the most compelling investments with a 3-5 year time span. Buy Apple at these levels and buy more if it goes down further. If you want to be even more aggressive, consider buying long term call options for even more potential upside.

9. Market Share

Apple has been gaining market share in two major categories: computers and smart phones. While the economic slowdown hurts all companies, Apple is likely to gain even more market share as companies such as Dell, Motorola, Research In Motion all get hit hard.

Remember the old bear market story where two people are in the woods and see a bear nearby. When one of the people begin lacing up his shoes, the other says “Why bother? You can’t outrun a bear.” The other responds with, “I don’t have to outrun the bear, I have to outrun you.”

Apple will definitely outrun competitors especially with their abundance of cash. Apple can continue to innovate, research, advertise while others conserve cash. Look for market share to continue to gain which will result in huge long term revenue growth when the global economy comes out on the other side of the recession.

10. Amazing Advertising

Apple continues to dominate advertising with clever PC vs Microsoft ads and fantastic iPhone ads showcasing amazing applications on the iPhone. As I said in reason #9, Apple will continue to advertise aggressively while competitors cut back due to their large cash reserves. I love seeing the new ads come out and sometimes I even watch them on Apple.com. As you can imagine, I don’t watch any other company’s ads on their corporate websites.

The One Reason Not To Buy Apple

Now the only reason you may wish to avoid Apple is the major consumer slowdown we are currently in and that is likely to continue. I believe this is already priced in (see reason #8). Also, this slowdown might end up benefiting Apple over the long term (see reason #9).

As you can see, I love Apple and the opportunity it presents for investors looking to make large gains over the next 3-5 years. Do yourself a favor, buy the stock now and forget about it for a few years. Or, if you watch it and it goes down, just buy more.

4 Comments »

  • Matt Peer said:

    The only thing that you missed is that yes while $200 is comparitively cheap, the real issue is that they onerously make lock you into a contract that is far more expensive. If they set it up such that you could opt out of the contract, I could see the benefit. Also, they need to let users be able to insure the iPhone. I realize it would be very expensive to insure, but if consumers could get a blanket insurance policy for say a modest monthly increase of $2.50 (to $7.50 from $5) with a $200 deductible for a refurbished iPhone(as opposed to $50) this would give us that may drop the phone by accident peace of mind.

    Lastly, I agree that Apple is a company that is ran with unbelievable managment. The only caveat, as I have mentioned before here, is that its success seems too “linked” with Steve Jobs. His pancreatic cancer as of this writing is still in remission but this type of cancer is the most aggressive, especially in males his age. Perhaps this is one of the market’s concerns with the stock? Great post otherwise.

  • kevin duffey said:

    Matt,

    I’m actually paying less per phone now with the iPhone and AT&T’s family plan. The more phones you can bundle under one plan, the cheaper it is. I’m paying just over $60 per phone, per month now, with unlimited data and text and a sufficient # of minutes.

    I think Jobs is the man, but I also think he is not the only reason for Apple’s success. I also think their management will recognize the need to continue to develop other leaders at Apple.

    With regards to insurance, I agree, it sucks there is none. Be careful with your iphone!

  • Matt Peer said:

    OK, I do stand corrected. I just read an interesting piece in Fortune about Tim Cook, the COO of Apple. He apparently basically runs the company right now. The only drawback with Cook is it says that he’s not as extroverted as Jobs and he doesn’t QUITE have the vision. But you are right, it seems that Apple has a lot going for it besides Jobs at the helm. They also say that the stuff Apple has in the pipeline and the “mother of all balance sheets” as CFO Peter Oppenheimer put it would get them through a tough economy and the potential death of Jobs. In the meantime let the rumors swirl, let the market rip it to shreds for the next year, because this one will take off, especially if they start paying dividends. This stock trades at about 3.3x CASH not earnings! A steal!

  • payday UK said:

    This is absolutely ridiculous — what is the point of me saving any of my money if the Government is going to come in and take it over — I might as well spend every penny I earn — I have a rich uncle – Why should my hard work and dedication get distributed across the board.