What’s up with Apple?

apple

One of my fellow bloggers, Howto$tuffYourPig found it hilarious that my golfing buddies asked for financial advice even though I was on vacation and officially retired. She was just kidding but couldn’t resist commenting. “Hey by the way, what’s up with Apple? “

For the record, I do own some Apple shares and couldn’t resist writing a blog post with my thoughts regarding the stock. It is, after all, one of the top ten stocks owned by both boomers and millennials.

In a phone interview with CNBC, Mark Yusko (chief executive and CIO of Morgan Creek Capital Management) said he believes Apple’s stock price could double, most likely in the next 18 to 24 months. Yusko cites a strong ongoing product cycle and the company’s ability to take share in China.

Goldman Sachs also added Apple to its “conviction buy list” on Wednesday, telling investors that share prices could rise by 43 percent over the next 12 months.

Why the stock price has been flat

Apple currently trades like a hardware stock at 11 times price to earnings ratio (PE). Investors still feel the scars from fallen hardware giants like Motorola, Nokia, BlackBerry and HP. They are worried that Apple’s growth has peaked and will have a negative impact on the share price.

Apple’s products are more expensive outside the United States because of the strong U.S. dollar and could hurt future profit growth. Plus economic growth in China is slowing down which could affect I-phone sales.

Why I own the stock

Apple will be launching services that will generate recurring revenue like Apple music which costs $9.99 per month. Apple pay is another service that is slowly being adopted. On-demand TV is a new service that could generate about $40.00 per month next year. The average revenue per user could be as much as $150.00 per month.

Apple generates a lot of cash and is trading at a discount if you remove the cash from the price to earnings ratio. This cash has been used to buy back shares and could also be used to increase their dividend.

The Apple brand in China has become a status symbol and the value of the Chinese Yuan is pegged to the value of the U.S. dollar which has no negative effect on pricing.

With the holiday shopping season now gearing up, many people will purchase an Apple Watch as a gift. The Apple Watch allows office types to make & take phone calls, respond to texts from their wrists and get notifications about email. Fitness devotees also like the watch to track things like heart rate and calories burned during exercise. This could be the driver of Apple’s share price over the next year.

Lastly, my fugal wife loves her I-phone and I find travelling with our I-pad more convenient than lugging my lap top.

Disclaimer: Please do your our research or consult with a financial advisor who isn’t retired. 

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5 thoughts on “What’s up with Apple?

  1. Goldman +43%! Wow – that’s some confidence, isn’t it. I’m too much of an index fund guy to play individual stocks, but it’s fun to imagine. I wonder if the analysts get a sneak peak at the product pipeline?

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  2. I also wonder if analysts get a sneak peak or just follow companies that supply Apple with their components.
    I would be happy with a 43% return but I think that Goldman has been overly optimistic in the past so I will just wait and see.

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  3. Thank you for answering my question… Lol! I normally stay away from tech stocks, but Apple produces tangible goods that are in demand so I made an exception to my own rule. I am too afraid of stocks like Facebook because the tech world changes so fast and I am in it for the long haul. When people challenge me on it I always ask “Remember MySpace?” and now Twitter is sputtering. I agree that Apple will continue to release or capitalize on innovative products. Love your disclaimer! Happy retirement! 🙂

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