I Was Wrong About Apple

My aim is to always be honest with the readers of my blog. I always try to keep them informed of my winning and losing investment ideas. Most of my picks have been dead on but occasionally I have some picks that go the other way. One of these is the company Apple.

Apple (AAPL) recently surged through the $600 price level. This is a development that was completely unexpected to me. I thought Apple was good company with lots of great products but I never thought that the stock would surge like this in the near term. Shares are up $200 over the past three months. The impetus has been the great sales numbers for the iPad, iPhone, and iMac. Apple now has a market share of $560 billion dollars and some analysts are predicting 1 trillion dollars.

Apple has taken down Exxon Mobil (XOM) for the title of the largest publicly owned company in the United States. That is saying something considering the size of Exxon and the fact that the oil conglomerate has held the title for years. The growing size of Apple is a clear sign of the impact that technology has had on the global landscape.

My primary concern about Apple was over the long term growth drivers for the stock. I am always leery of companies that have fantastic growth patterns and that every analyst has a buy rating on. It looks like however that over the short term that Apple has been able to overcome any doubts and has continued to outperform. I will not bet against Apple again as the company has proven to be a stalwart.

What do you think that Apple will do in the coming years? Will the stock keep heading upward or is it due for a pullback?

17 Responses to “I Was Wrong About Apple”

  1. avatar krantcents says:

    I fully expect(ed) they would do a stock split. Their stock has become very pricey and I think that can be a problem in the long run. It is difficult to sustain this level of value.

  2. avatar Sfi says:

    UBS recently reported that smartphone sales will increase 100% for iphone in FY13. Id say 1 trillion market cap is possible!

  3. avatar Jan says:

    I do not see why a stock split would make the stock less pricey. You would get a lower price per share, but the increased number of stocks would give the same total cost for the company.

    if you just look at the price per share Berkshire H. A looks a lot more pricey =)

  4. avatar Someone says:

    Personally I think Apple has done a great job of marketing a great product rather than designing a product that is superior to the competition’s. In the professional tech circle, Apple aficionados are described as “Sheeple” for slavishly awaiting every new product release. It’s more of a fashionable trend and a lack of knowledge of alternatives that drives the masses to buy Apple products.

    It doesn’t mean that Apple won’t continue to earn money, but it does make their moat less substantial than most people believe. The moment that Apple fails to successfully invent new markets, its earnings will fall. After all, look at the trail of products Apple has left behind. PCs and Ipods are rapidly being commoditized or subsumed into alternatives. Don’t expect Apple to be able to charge such a premium so consistently in the future.

  5. I think the AAPL growth story is nearing its end and competition is going to be an ever-increasing issue. The recently announced dividend indicates AAPL sees no good new market opportunities (or else they would keep that cash and use it to finance their entry into those markets). That said, I don’t see AAPL as a short right now. At some point I think the stock will break down and end up with a PE in the low teens like MSFT, but I have no prediction about when that may happen.

  6. avatar Mark D. Cook says:

    Apple is definitely a superstar stock pick! It’s up 50% on the year.

  7. I tend to disagree with the comment that Apple is nearing the end of its growth story. I know lots of people who do not have iphones, Macs, or ipads. These are new customers that will be purchasing these products over the next several years. Not to mention that replacements for the current products will continue to drive growth. I guess it depends on the definition of nearing the end. Another 10 years, then maybe.

  8. I think it will pullback here if it starts to struggle with innovation. Without it’s visionary, I think it will have a hard time once the current pipeline dries up.

  9. avatar Mark D. Cook says:

    Apple is certainly a superstar stock pick! It’s up over 50% on the year I believe.

  10. Many say that the stock wont split so my only problem is being able to afford enough stock to make my purchase with the return. I also agree with cashflowmantra, in that I know so many people who have yet to own a Mac, iPad, or iphone. At this rate there is still a lot of opportunity for growth and they are looking to get into producing tvs as well.

  11. avatar John says:

    I used to own Apple stock, but got out of it once I realized that I was spending all of my waking hours checking the “Stocks” app on my iPhone. Apple is a volatile stock, although it is doing well. I’m more of a mutual funds guy now, as they are a bit more predictable over the long term. Plus, mutual funds aren’t really compelling to check every 5 minutes – ha!

  12. avatar JT says:

    The company looks awesome, but there’s really no margin of safety in consumer tech. Tides change too fast, and although Apple has enjoyed a very impressive rise to the top, it’s important to note that it was at the bottom of the barrel 10 years ago.

    More so than other companies, Apple does have a brand. I’m still way too conservative to put any amount of cash at risk in a tech company.

  13. avatar Jai Catalano says:

    Do you think it will go over $1000?

  14. Apple has been a great stock for us! We purchased for $125 just a few years ago (although, sadly, my husband decided to sell 50% of our shares after they’d doubled). We’re still holding on to the rest though.

  15. avatar Omar B. says:

    What seperates Apple from other companies is that they are constantly looking for ways to get better. Many companies get cocky and stop doing what got them to the top. Apple seems to be doing everything to remain at the top. They are being proactive versus reactive. I think that the stock will continue to rise.

    On another note, I think the shareholders would appreciate some dividends in the near future.

  16. avatar Burnt Toast says:

    Depends on what you’re definition of pricey is. True, the cost of one share seems ridiculous to you and me, but Apple (AAPL) has been and still is a performance monster. Whether you look at their EPS, BVPS, ROIC, ROE, SALES, or Free Cash Flow growth rates over the years, they’ve all been through the roof. The price today for one share of Apple is $663.22, but if you take a look at their rough P/E ratio, it’s sitting at 15.5X earnings. I like to consider companies with a P/E ratio of 25 or higher are overvalued. Take a look at Chipotle Mexican Grill, which was trading at roughly 35-40 times earnings (correct me if I am wrong please) and has experienced a big drop off.

    Apple has built a name for itself with it’s products and it seems that all Apple has to do is take their current products and change styling in order to get people to come back and buy from them again. To me that indicates a moat in terms of brand recognition. Personally, I wouldn’t buy into Apple at the price it is today and I’m not a big fan of tech stocks, but if you were to ask me if the price of the stock is justified, I would say yes.

    P.S. Mark, don’t beat yourself up too much about how the price of Apple has skyrocketed. No one can predict what the future holds for any company, no matter what tools or advice you receive, the unthinkable can always happen.

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