July 11, 2012
You might get sick of me saying it, but Apple Inc. (AAPL) is one of my favorite companies. Not just for its products—though I will admit that my iPhone and iPad are never more than arms length away—but also because its fundamentals are simply exceptional. This is simply so much going right for this company with smart management decisions, solid product development and an expanding market share.
One of the things I like to look for when investing in a stock is a company's ability to dominate its business—and Apple is truly the king of practically every product arena that it enters.
In the most recent quarter, Apple sold a whopping 35 million iPhones, 12 million iPads and four million Macs. People around the world will gladly stand in line for hours, even days, to be among the first to get their hands on the next generation of products.
Even better, earnings are always growing faster than sales because Apple's operating margins are expanding. This is a big deal—margins matter big-time to investors. And the company does a great job of rotating its product cycles very well, getting the maximum bang for their buck out of each new iteration.
And the next iterations are exciting. Investors are getting giddy with the expected launch of the iPhone 5, the iPad mini and the long-awaited potential Apple TV. Here's the latest:
iPhone 5: Forget the likelihood of a bigger display and a slightly nicer form, the big deal here is that analysts expect the newest iPhone may support the proprietary 3G network of China Mobile (CHL), the largest cellular operator in the world, with 650 million mobile subscribers. China is truly a massive market for the company, especially since Apple iOS devices currently have less than 20% of the market vs. nearly 70% for Android, the operating system of rival Google (GOOG).
iPad Mini: This will be the first entrant from Apple in the rapidly growing miniature tablet market. For a while, the high prices and lackluster products in the space allowed Apple to sit back and milk its higher-margin 10-inch tablets, but with the entrance of Google's $200 7-inch Nexus, Apple is getting more serious. I'll be keeping on top of developments here, as Apple's entrance into the market will be met with plenty of fanfare.
Apple TV: Shortly before his death, Steve Jobs told his biographer that he had "finally cracked" TV. Investors have been anticipating that Apple would shake up the television industry, much like it revolutionized the telephone and music industries.
Clearly, the company has set itself up for a blockbuster second half of the year—and I see significant upside for the stock ahead of its second-quarter earnings and on through the year.
Two other aspects that will support Apple shares in the second half of the year are its dividend and stock buyback plans—the company will pay a dividend beginning in its fiscal fourth quarter and initiate its $10 billion stock buyback plan on September 30.
While there may be some volatility leading up to the next product innovation or creation, I see Apple as a trillion dollar company in the next three to four years and the only way to cash in is to buy shares now.
Posted from my iPad!