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Apple Inc. (NASDAQ:AAPL) is arguably the best example of a comeback kid in industrial history. It is hard to imagine that less than twenty years ago the then named Apple Computer Company was relegated to the trash heap of tech history along with a host of flash in the pan wannabes. Then legendary founder of the company Steve Jobs returned and revolutionized both the company and the industry by changing the focus from a computer company to a mobile device provider. Apple Inc. has surpassed Exxon Mobil (NYSE:XOM) as the world’s largest publicly traded company.
While some market experts claim Apple’s stock is cheap, others warn it has grown too far too fast. So what’s the story? Is Apple still a buy or should average retail investors hang around for awhile and test the waters before jumping in?
Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework.
C = Catalyst for a Stock’s Movement
If ever there was a company that qualified for the mythical title of King Catalyst, Apple is it. Do you remember the Sony Walkman? Everyone who wanted to look cool had one until Apple (NASDAQ:AAPL) introduced its game changing IPod, which was a whole lot cooler. Although Apple generates revenue from services like the ITunes store, they are primarily a gadget maker. And as you know the trouble with gadget makers is there is can be someone lurking in the shadows ready to introduce a better gadget.
Not so with Apple (NASDAQ:AAPL). They have introduced one superior gadget after another, all game changers. Tech history is littered with the broken dreams of Apple killing competitors, such as the IPod killer Zune from Microsoft (NASDAQ:MSFT), and the IPhone killer smartphones from Google (NASDAQ:GOOG) Android manufacturers, and the IPad killer Amazon Kindle fire (NASDAQ:AMZN). Apple has withstood them all, although the Kindle and Android phones have nibbled at market share. Of course all that is history, so what is Apple up to now?
They have two potential catalysts about to be released and a long term sleeper that could be revolutionary. The IPhone 5 and the mini IPad are a few months away from launch and already. Apple is turning the tables with these offerings as some experts are calling the IPhone 5 an Android killer and the mini IPad a Kindle Fire killer.
However, the catalyst that could propel Apple stock towards the elusive $1k per share mark is the Itv, which some are already dubbing the IHub. While some scoff at the notion of nothing more than a large IPad hanging on your wall, the potential of a subscription service for traditional TV channels opens the long term possibility of the ITv replacing traditional TVs. As is often the case, Apple’s legendary secrecy leads to rampant speculation about what the ITv could do or whether or not one will even be forthcoming.
H = High Quality Pipeline
In some ways Apple really needs the Itv launch as critics point out that no matter how high quality the known pipeline is right now, it is stuffed with enhancements to existing gadgets. Yet even though thereare some tiny chinks appearing in Apple’s armor from the likes of the Samsung line of smartphones and potential competition from Microsoft’s (NASDAQ:MSFT) newly announced tablet offering, one only has to look at the excitement generated by an Apple appearance at Developers Conferences to see the power of its product pipeline.
E = Equity to Debt Ratio is Close to Zero
Apple is one of the few Blue Chips you can find that doesn’t owe anybody even one thin dime. That’s right. Their debt to equity ratio is 0.0 and it doesn’t get any better than that. Actually, it does, because to go along with their zero debt they have more cash on hand than many countries –$28.54 Billion as of the most recent quarter.
A = A Level Management Runs the Company
This may be one of Apple’s few Achilles Heels. CEO Tim Cook has handled the transition from the unfortunate passing of tech legend Steve Jobs but right now he is managing the execution and implementation of initiative hatched in the mind of Jobs. What Cook does going forward remains to be seen. So far many experts are impressed with the quality of the complete management team Jobs left behind. However, others point to the fact latest innovations are enhancements and refinements of existing product lines and Apple has not had a new game changing gadget since the IPad launch. This makes the potential catalytic power of a revolutionary Itv launch even greater.
E = Earnings are Increasing Quarter over Quarter
Even the mighty Apple stumbles occasionally and the perfect record of five consecutive quarters of EPS growth was nicked a tad when the most recent quarter reported showed EPS of $12.45, down from $14.03 in the prior quarter.
T = Trends Support the Industry in which the Company Operates
Apple (NASDAQ:AAPL) is in the sweet spot of industry trends with their integrated line of mobile devices and MacBook laptops. There is no denying an exploding trend toward more mobile devices that can interface with each other, but there is a question as to the future role of a traditional Personal computer, either in desktop or laptop/notebook format. Apple clearly sees the trend as a Post-PC world where tablet computers reign supreme while Microsoft (NASDAQ:MSFT) sees what they call a PC Plus world where a fully integrated operating system like the soon to be launched Windows 8 ties everything together, breathing new life into the PC. The battle lines are drawn as Microsoft is moving into the hardware space with their Source Tablet Computer and Windows smartphones via partner arrangements. Apple is the reigning king and the likelihood of their losing the throne in the short term is negligible. In the long term, Microsoft could give them trouble if they can deliver. Given Microsoft’s recent history as the doddering old man of tech, that is a big if.
Apple shares took a bit of a hit after their last earnings release and investors who saw the dip as a buying opportunity have already been rewarded. In the near term, it is hard to argue against Apple as a Buy. Their potential competition in the tablet space is exactly that – potential. The smartphone market is another story as evidenced by Apple’s legal battle against rival Samsung over patent infringement. Samsung has been eating into Apple’s dominant market share in markets like Australia and Europe. In the US Android leads in market share but that is split amongst different manufacturers of Android phones. Apple leads the pack at 34% with Samsung a distant second at 17%, HTC at 14% and Motorola (NYSE:MSI) at 11%.
As a long term hold, however, Apple (NASDAQ:AAPL) may need another game changer to sustain its momentum. Watch for the reaction to the new IPhone 5, new TV product and the mini IPad.
Using a solid investing framework such as this can help improve your stock-picking skills. Don’t waste another minute — click here and get our CHEAT SHEET stock picks now.
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