Friday, January 16, 2015

Recent Buy: Why I re-started a position in Apple (AAPL)

Good day my fellow investors.

I am here to share the news of a new addition to my portfolio, AAPL. This is a company that needs no introduction. If you read my November "wish list" you may remember this stock was on the list. You may also remember that I mentioned the fact that I owned apple stock about 2-3 years ago but I sold it not too long after Steve Jobs passed away. The fact that the stock price started to tumble quite rapidly, competition was getting fierce, and I wasn't very clear about the future of the company with the new CEO; I was propelled to sell my shares and take my profits elsewhere.

Truth is that this company was my "portfolio star" for many years until I sold, and it was always on the back of my mind to buy shares again, 'someday'. When the company did its 7:1 split (back in April of last year) and I noticed that Tim Cook (new CEO) was actually doing quite an excellent job with the company, among other factors, the possibility of buying shares again kept getting stronger. And so, back in December, during a very down day when the stock market had a "mini crash" and the shares of apple sunk along with the rest of the market, I made my move. Happy to say I am once again a shareholder of Apple.

I have to be honest that this is probably one of the most followed companies in the world among analyst and one of the most talked about. I remember reading somewhere (probably more than once) that it may not be a good idea to put your money in companies that everyone is always talking about. Although I somewhat agree with this statement, I also believe is somewhat flawed. I think that if you wait for the 'hype' to quiet down a bit, you are patient and wait for the right time to put your money in said companies, the decision can turn out to be quite positive. So far so good.

Apple also reports earnings on January 27, so I am looking forward to what they have to say. The earning announcement should encompass information regarding overall sales of the new Iphone 6, sales of other apple products, patent technology, among other news.

Without further 'ado here are some of the top reasons why I re-started my position in Apple:

The brand is still creme of the crop, and extremely popular:

As previously mentioned, one of my prior fears about apple (and one of the reasons why i decided to sell several years ago) was that they were loosing their edge and competition was getting extremely fierce. Although competition against apple is definitely strong-- the truth is that this company is still creme of the crop when it comes to what customers look for. What other company in the world has people lining up and camping out for days at the time or 'paying people off' just to get ahold of their new device every time there is a new phone upgrade:


imagines of lines around a mall for the Iphone 6 debut.

The only other product I can think of that people do this for is Nike Jordans. When a company has this type of strong popularity and a strong "cult" of people who are obsessed with its products, is hard not to notice. And of course, this line around the block means sales through the roof and more money for the company and its shareholders. We will see whether that was the case during the upcoming earnings call. 

The company is eager to keep growing:

Although apple has several popular and innovative products. It is true that bulk of its revenue comes from the Iphone alone. This graph can help illustrate--

Source: artsTechnica

A far second is the Ipad which, although it sold about 237 million units in four years, sales have actually fallen about 4% during the past year. With that said, apple continues to work hard when it comes to innovation and is in no way sleeping in its laurels. As you may already be aware, they not only have the upcoming Iwatch, which can become a pioneer and may very well set a ground breaking standard going forward for this type of devices; but they are also winning patents that can allow it to go head to head in competition with popular devices. For example, this past Tuesday, Apple was granted a patent for action camera technology (think GoPro cameras). The news triggered a 12% drop in GoPro shares with the fears that Apple may eventually come out with a similar device which could possibly take market share away from the popular company.

Excerpt from Apple's fourth quarter conference, for year ending Sept. 27th, 2014:

“With amazing innovations in our new iPhones, iPads and Macs, as well as iOS 8 and OS X Yosemite, we are heading into the holidays with Apple’s strongest product lineup ever. We are also incredibly excited about Apple Watch and other great products and services in the pipeline for 2015.”
-Tim Cook.

Valuation: 

You would think that after a 7:1 split, the stock rising over 30% in 2014 alone, and a market cap of over $628 billion, this stock would be extremely expensive.  That's apparently not the case. the price is still fairly cheap in comparison to other tech companies in the industry. The company's earnings are growing at about 33% faster than the average big stock in the tech sector. Price to earnings ratio based on projected profits is about 12.41, which means the stock trades at an over 16% discount to the S&P 500 technology index. Average P/E in the tech sector is over the moon-- with companies like Google and Facebook, at 26.41 and 68.76, respectively. Hence, AAPL current valuation seems quite attractive.

An "efficient" market would tell us that the current price has every single noted factor baked in and there is no much room for growth. Hence, this is one of the reasons why the valuation may be low. I beg to differ on that. I think that Apple as a company has a lot of in-house talent and a CEO excited and willing to take the company further, coming up with innovative ideas for an constantly evolving high-tech world.

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So there you have it. I am back to being a "part owner" of Apple. Not to mention that with over $68 billion in current assets (Source), the company has more than enough cushion to pay a nice anual dividend yield of 1.77% ($1.88 per share) and participate in share-buy backs. You all know how much I love dividend paying stocks. My plan is to hold shares for at least 3-5 years.

Excited to see where this goes and as always keeping my eye out for any industry changes or anything that may change my original investment thesis.

Tell me, what are your thoughts of Apple's prospects for the future? Do you currently own any apple products?


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*I am long AAPL. This is not a investing recommendation. Please dont invest or cease to invest based on the information from this post.