I own Apple (AAPL) shares; they represent one-third or so of my liquid net worth. The fullest of full disclosure.
Those who bad-mouth Apple – the company and its prospects – are so wrong- headed they probably agree with Jack Welch that the Bureau of Labor Statistics cooked last week’s jobs report or there really was a continent, Atlantis, that slipped below the waves. Perhaps they even believe the Cleveland Browns can make it to the Super Bowl.
All successful companies are targets of pundits looking for headlines, air time, and investors in their funds. And some of these companies may deserve it, for often a stock stays aloft even after a company is clearly on the downtrend.
This is not the case with Apple. The reverse is true. Apple is grossly undervalued compared to its peer group, the S&P 500, the NASDAQ, whatever. It is selling off now as money managers pocket profits before they close the year on Oct. 31, as individuals do the same and as traders see Q3 earnings as a bit light due to the iPhone 5.
It is, of course, all nonsense. Here is why.
Apple’s abounding strengths
Brand: Apple has the No. 1 or No. 2 brand, based on its value, in the world — depending on which set of analytics and which analytics company you choose to use. How strong? It does not have the name of the company on its stores.
Products: Based on critics comments, not mine, Apple makes or owns the best smart phone; the best laptop; the best tablet; the best online music store; the best online app store; the best integrated product experience.
Growth: Revenue growth north of 25%, profit growth double that for the past several quarters and, in my view, the next three years.
Margins: On average, almost twice its competitors margins in computers, ditto for cell phones, more than double its competitors’ margins on tablets. Actually, no one else makes a dime selling tablets.
. . . And room to grow
Running Room: Unlike any other market leader in living memory, Apple has small to tiny market shares in the markets in which it is most successful.
- • Less than 5% of the world cell-phone market — and growing in double digits.
- • Less than 5% of the corporate computer market — and growing in double digits.
- • Less than 10% of the overall computer market — and growing in double digits.
- • Less than 20% of the tablet/netbook/low-end notebook market — and growing in double digits.
- • Less than 10% of the music market — and growing in double digits.
Unlike most huge companies, Apple has a series of upside catalysts in the next 1-12 months:
- Calendar Q4 earnings will be shockingly high, as will those of calendar Q1. According to surveys by ChangeWave Research (part of the 451 Group) the pent-up demand for the iPhone 5 is most they have seen for any Apple product. ChangeWave does hyper-accurate surveys that predicted the success of the iPhone — and named it — one year before it was introduced.
- An iPad mini is rumored to be announced sometime in the two weeks to six months. This product will have a lower price point and bring Apple to a new audience.
- Apple is rumored to be on the verge of concluding a deal with China Mobile – a company with almost 650 million (yes, million with an “M”) subscribers.
- Apple will enter the living room next year with another rumored product, a far more robust version of Apple TV.
You may have noticed I am not using point estimates for anything — I see no point, pardon the pun. That is a game for analysts living quarter to quarter and traders living hour to hour. The bottom line is simple: While major tech names from Dell (DELL) to HTC see flat or negative growth, Apple will growth north of 25% for at least another three years with equivalent or greater profit growth. Better still, if the company only grew 10% on average, and it was valued as other 10% growth stocks in the SP&500 (there are a few, not many), and maintained margins, the stock today would be worth of $1,240-$1,400.
As I said, I own it and to generate my own dividend I write weekly or monthly calls against the stock. In one of my services, Options Income Blueprint, I have AAPL as a core holding and income is generated by writing those calls. It is the only position that is also in another one of my services, The New Normal Investor. And in my other service, Short Side Trader, I have recommended or have open put positions on Apple victims — Nokia (NOK), Best Buy (BBY), Research in Motion (RIMM), Dell (DELL).