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Why Apple is the Greatest Stock of the Decade

Category : Personal Finance, Smart Investment Ideas

Apple just announced FY2012 Q2 earnings;and the growth saga continues.

Apple is my favorite stock. If you are a value investor — and get inspired by the wisdom of Warren Buffett — Apple should be your favorite stock too!

Have you ever found a company that has best of both worlds? — Apple’s earnings per share is growing at astounding 94% with P/E ratio of 9.

Apple’s stock  is  more attractive than IBM, McDonald’s or Microsoft on the Price to Earnings valuation.

Apple was trading at $459.68 on February 4th, 2012 when I published my model portfolio.  Today — after the closing — it is trading at $601.

A week ago, I visited nearby Apple store as I love to do so. I noticed a 5 or 6 years old girl playfully using new iPad3. I realized that Apple has transcended new generation of digital technology for the new generation — no more cumbersome menus to nevigate; no need to know where the old program resides.

iPad has allowed users — who are not geeks — to connect directly with the digital world to explore and discover those apps that can do just about anything you want to do — connect with friends, share your pictures, buy and sell stocks, check your emails.

Noteworthy Statistics:

  • $39 billion revenue. All time records.
  • EPS(Earnings Per Share): $12.30 vs $10.04 expected.
  • Mac products: now records for desktop and portables. 4 million Macs sold.
  • iPad: more than 11 million iPads sold. Increase of 151%; iPhone: more than 35 million iPhone sold. Increase of 88%.
  • Gross margin rose 600 basis points to 47.4%.
  • International sales made up 64% of total revenue.
  • Customers love the new iPad (AKA demand is growing rapidly).
  • stores: 12.2 million revenue per store – up 23%.
  • iCloud: 125 million customers signed up (AKA expect more sell via iCloud).
  • Cash on hand: $110.2 billion;  No debt.
  • Dividend: $2.55 per share.
  • Revenue $7.9 billion  in China; Mac sales up 60% year-over-year. That’s the iPhone halo effect in action.

Why I think Apple is the Stock of the Decade:

1.   Apple is cheaper — trading at a forward P/E of 9 — compare to other value stocks that Warren Buffett has in his portfolio, mainly, McDonald’s, IBM and Microsoft.

2.  Apple per square foot sales in its store is five times any major retailer in the world.

3. Apple has announced dividend payout of $2.55 per share recently; it’s attractive to all of those retirees and major funds heavily invested in the dividend paying stocks.

4.  Apple’s cash hoard has grown to $110 Billion. It’s more than all but only top 20 companies in S & P 500.

5.  Apple just started selling internationally. It’s sales in China in the current quarter was $7.9 Billion and growing.

6.  iPhone 5 and Apple TV are two major products expected this year.

7.  Apple has revolutionized commodity business as such that it has incredible pricing power over its competitors. Apple has executed flawlessly so far and it commands tremendous competitive advantage over its competitors.

8. There is no other company in the S & P 500 with 3 years sales growth of 52%, EPS growth of 68% and $110 Billion in the bank.

9. Coca Cola is known as the household name worldwide. Apple has all the potential to become the household name worldwide.

10.  There is no other stock that can excite both value and growth investors with its incredibly low valuation after a great run while growing at a torrid pace from every financial measure.

Recent pullback in the stock price proves that most pundits don’t know anymore than us — mere mortals — when it comes to predicting future of any stock. I believe that Apple has incredibly astute management at the helm. Nothing is forever in this world, but I think that Apple has just begun its growth in the international market. In fact, sales was better in Europe than the sales in America. With the economic woes Europe is facing, Apple’s strong sales show the power of a giant brand.

I don’t average down. As a growth investor, I buy stock while it’s ascending. Apple has been one exception. I will keep buying it on the dip, as long as it can deliver this phenomenal growth.

Do you agree? I’d love to know your opinion.

Disclaimer:  I do own Apple stock. I am not a certified financial adviser. Please do not construe my advice to make financial decision unless it  fits your investment style.

(Photo courtesy: JStrickland)

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Comments (27)

Well Apple is the current darling and certainly has been a great ride. Talk is it is soon to be the first Trillion dollar company.

I dunno and haven’t done any analysis. But talk like that is enough to make me nervous.

Enjoyed your analysis!

I agree with you Jim. I won’t be surprised if it becomes the first Trillion dollar company. Stock price of $1000 will make it a Trillion dollar company. At that level, P/E ratio will be around 18. I think the stock has great deal of upside from hereon.

Shilpan touts appl and the next day it is up 10%!!

I gotta start paying closer attention. :)

BTW, how are you figuring the p/e?

isn’t 615P/12.30E = 50?

what am I missing?

Jim, I meant Apple’s forward P/E is 9. It’s calculated by this formula, Price/annualized earnings.

So, if you take forward 12 month annualized estimated earnings of $65.64 per share, and price of say $600, forward P/E = 600/65.64 = 9.

Keep in mind that if you take cash on hard per share then the valuation is even more attractive. This is the stock Warren Buffett should buy. :)

ah. got it.

OK, what do you see has the downside risk?

That is, what case would the nay-sayers make?

Nay-sayers believe that Apple is in commodity business — which it is — and that competition is fierce with copycat products selling at much cheaper price. I don’t buy that for the reason that Apple has created huge fan base, and its products are unlike any with brilliant marketing and technological advantage.

I really see no down side unless Apple screws up in its execution plan. So far, Apple executives have executed their strategy flawlessly.

Apple is truly a great company. It’s unbelievable all of the cash reserves they’ve built up and don’t carry any/much debt. So awesome.

I’m curious to see how they’ll do in the long-term. They tanked a bit when Jobs wasn’t with them in the 90′s but they also didn’t have products like the iPhone and iPad…so we’ll see.

I wish our government can learn from Apple. Apple is an American icon of capitalism. It shows that the true spirit of American entrepreneurship can create abundance of wealth in good times and bad times.

I tried to go into an Apple store this weekend and I couldn’t even edge my way in because it was so busy!

I was feeling pretty good about my sale around $550 yesterday when the stock dipped back down to almost that level. BUT with today’s 9% increase, I’m wishing I still had a few shares. Oh well – what’s done is done. I love that they finally starting paying a dividend. I’m very impressed out how they continue to exceed earnings expectations quarter after quarter.

Absolutely. This company is firing on all the cylinders. And, best has yet to come with iPhone5 and Apple TV. In fact, their rate of growth is far exceeding the price move. So, this stock is priced attractive even at this level IMHO.

Apple has enthusiasts, seemingly, like no other. It is amazing how much they are able to get away with because they have discipled so many loyalists and have an incredible amount of goodwill. Surely, they have indeed had a fantastic run. I think many more companies would benefit from following their example.

I agree. Keep in mind that Apple is feeding its ecosystem consisting of some major fortune companies like AT & T, Verizon and Qualcom. All of these companies are going to make money by the virtue of doing business with Apple.

I wish I would have bought stock in Apple a year ago! I hope they do make it to a trillion. They deserve it.

Michelle, I think that it is smart to buy few shares consistently to create wealth. Remember, it’s never too late to invest wisely. And, the turtle wins the race. :)

Apple is definitely the stock of the decade. The company has a very long track record of not just its technological advances, state of the art electronics, and stock earnings, but also its customer service. The main reason millions of people invest in Apple and purchase its products is because Apple goes the extra mile to reach out to its large customer base.

Amen! Apple has ecosystem(iPhone, iPad, IPod, Apple TV, MAC) that does exceptionally well. Apple’s quality is far superior than any other electronic device maker in the world. I also believe that Apple has the best management at its helm. Apple is destined to do exceptionally well in the future.

Apple surely has made great technological breakthrough and created new markets. The predictions say that they would grow to 3 trillion$ company in next 10 years. but its a prediction and can go wrong. Apple would be a great stock 5 years ago, right now I cannot say.

The points you have mentioned are impressive but there is one thing. I still feel its stock is bit overvalued. This is because everyone is willing to invest in Apple.

Karunesh, valuation based on the price itself can be misleading. Apple is cheaper than Microsoft and McDonald’s on the valuation basis. :)

Case nicely presented for Apple, however since I am not a user of their products, I cannot see myself buying their stock. Having said that, their stock might still continue to run, so good luck to the shareholders!

Thank you for stopping by. Why don’t you buy an iPhone or iPad3? You’ll be their customer forever. I guarantee you. :)

Great analysis, truly stock of the decade. I got an iPhone last year and finally realize the magic. $1000 is pretty lofty, but Apple seems to do no wrong even with Jobs gone.

Thanks! Most people don’t realize that it’s cheaper than most safe utility companies, yet it offers best of both world — dividend and growth.

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Apple is a good company but you never really hear the real truth about the company. The stock of apple traded at just 5 dollars a share in 1998 where were all the investment pros than. Their were few if any financial experts recommending the stock. Remember the movie forest gump. Just so happens they used apple as a stock forest was told to invest in the movie. Back than it was the or one of the most hated stocks around. I think the movie came out in 1995 or so. Looks like forest was not so dumb after all.

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