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What Does The Future Hold For Apple & The iPad?

8 September 2010 No Comment

Apple, Inc. (AAPL) is the most widely followed stock in the world.  No company has the fans and the following that Apple has for both its products and its stock.  Truly, it’s an incredible company.  As an investor, I tend to be a bit cautious about any company with such a high degree of popularity.  It’s tough to get stocks that are so incredibly popular at bargain prices or at a point that represents good value (unless of course you bought below $100 a couple years ago amidst the Steve Jobs health rumors and the depths of the bear market).

Today, Apple is trading above $260.  The easy money has been made.  With Apple still paying no dividends, it is hard to justify an entry point at this level.
Let’s turn momentarily to the iPad – Apple’s hottest product.

Since the release, I’ve been on record as saying that the iPad is indeed a gamechanger.   The technological advances aren’t revolutionary but the product itself is just excellent.  The ease of use.  The ability to use it for many different things.  The natural integration into the Apple eco-system of products (macs, iPods, iPhone).  Then, there’s the cool factor – which should not be discounted.

Uses for the iPad are growing.  I was alarmed when I heard early on in the iPad story of a family I know buying an iPad for their two year old.  Yes, a two year old.  I thought it was ridiculous until I realized that my one and half year old loved the kids apps on my iPhone.  Kid’s apps like Dora the Explorer are a hit!  The iPad is way easier than the iPhone for a toddler to use.  Additionally, there’s a recent article out about how iPads are replacing textbooks at schools.  We haven’t even mentioned the traditional uses: internet, email, photos, video, games, etc.  The iPad is truly an entertainment device, an educational device, and a productivity device.

Another recent article out discussed how iPads are cannibalizing PC sales as a whole.  Laptops and netbooks have become commoditized to an extent.  Furthermore, people are keeping their laptops longer rather than trading up every two years since the product cycle for laptops is slower than in the past.  Instead of upgrading a laptop, some are opting for an iPad.

The iPad story is excellent.  Once again, Apple is way ahead of the competition and just we heard time and time again about a competitor taking a stab at an “iPhone killer”, we will probably hear in the years ahead about companies’ attempts at an “iPad killer”.

But, what’s after the iPad?  Apple fans and investors are accustomed to rapid product development.  Is there a big product release or innovation down the road that can satisfy both groups of followers?  I’m not sure there is.

The Apple hype and lofty stock price is very much due to the innovation factor and the ability of Apple to always be ahead of competition with new products.  To keep the high valuation and the momentum, Apple must keep the innovation coming.  And I don’t think a revamped version of Apple TV or an iPod refresh is the same thing.

If new blockbuster products are not in the pipeline, will Apple turn to a value company versus a rapid growth company?  Apple has $30 billion plus in cash and currently sports a market cap of nearly $240 billion.  If product releases can’t keep the stock pushing forward, perhaps the Apple board will turn to dividends as a way to promote shareholder value.

The success of Apple is undeniable.  With that said, I just can’t buy Apple stock at current levels.  It’s not necessarily a bad investment, but I think it today’s climate, it makes more sense to be patient and look for truly above average opportunities.

Lastly, if you are an investor that watches the overall market, Apple is considered one of the market “generals” – a stock that tends to lead the market.  Until Apple corrects, you can probably assume that the overall market will hold up.  If Apple has serious weakness in its stock, then a more severe market correction might be in store.

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