AAPL: Stallings



Many of you have seen me write articles on Apple (AAPL) in the past. A majority of them have been about the markets and how Apple was growing too quick even though it is a juggernaut. I spoke about profitting from the pullbacks, and my very first article written for SA told of how Apple could acquire a certain company to bolster its ability to find more of a way into our homes.

But today I am singing a different tune. I sold my shares of Apple (for a profit) many months ago (somewhere in the $515 range). I felt it had run its course for the time being and frankly I had many other opportunities available that I took advantage of. I should have held longer, but we all know it is very difficult to time the market just right.

Apple as we have known for a long time is difficult to categorize as a type of company. Not that it is a bad thing, the company is unique and has wowed us for a long time now. It does make it difficult when it comes to valuation. Considering the Price vs. Sales is below 3 and P/E around 11, I find Apple to be an attractive investment at the current price ($475). When you compare Apple to their closest competition (see link), it looks that much better.

Because of this, I have recently purchased options of Apple with a target price of $560 for both March and June 13. Although the March calls look a little shaky at this point (although I still may turn a profit when all is said and done, currently worth 5% more than when purchased) the June calls look like a home run. Here are some other reasons why I see them coming to fruition.

Apple Inc. (<a href=

When in doubt, SUE!

As most of us know, this past week investor David Einhorn filled a lawsuit claiming that Apple needs to distribute some of the $137 billion or so of its cash on hand to investors. While the lawsuit itself may not come to fruition, I believe it will force Apple to do something. There is too much pressure and not enough fact for the company to justify sitting on that much cash, especially when the share price is down nearly 33% from its peak of $702 last year. An announcement of some type giving some of that cash to shareholders either as a buyback or increasing the dividend should in turn increase the share price. The last time Apple instituted a share buyback along with a dividend in March 2012, Apple was sitting on less cash ($98 billion) than now so odds are it will do something sooner rather than later. Last March, prices jumped nearly $50 a share (about 10%) on the rumors and eventual announcement.


For an established company, Apple sure does keep busy with the patent office. In 2011, it received 676 patents. In 2012, that number jumped 68% to 1135. This was good for 21st most worldwide. Below is an example of one.

(click to enlarge)

The device shown could potentially control all of your devices in your home from your iPhone or iPad. Even simple things as turning your heat higher or lower, or turning off or on lights on your way home. Modern conveniences. These are typically available on some high end home security systems, but why pay for one when Apple seems geared to provide the convenience for you?

It seems Apple is trying to penetrate every aspect of our lives, not such a bad thing. With over 1,000 more potential new items in the pipeline, I like the chances of turning a few of these into great new products such as the iWatch. Some other authors also believe that if the iWatch does come to fruition (seems to be catching more fire recently) that Apple will break through the $500 barrier and beyond just on that product alone. With the current pipeline, the company could even hit a home run with one or two (or more) of the other items as well. It seems to be very good at being a company that can get the best unique product out to market first.


With the growing possibility of tablets outselling traditional computers sometime this year, Apple continues to lead the way with over a 20% market share of all personal computers this year. The total amount of tablets sold this past holiday season increased by more than 75% over last year. Apple continues to dwarf all of the competition on tablet sales.

(click to enlarge)

As you can see, Apple sold 39 million units in 2011 and had about a 65% market share. Although the market share dipped in 2012 to about 56%, Apple sold nearly 20 million more units. That is a 50% increase year over year. We should not be focused on the market share, it was inevitable Apple would be giving some of it up and also a good chance the total tablets sold would increase (they did by over 67%). There are too many tablets on the shelves right now, many at 1/2 or even 1/5th the cost of an iPad. What I like is that the company continues to overcome the lower cost models and shipped 20 million more units than the year before.

Going forward, tablets seem to be taking more and more of the market share, having a position in a company that sells more than all of the other companies combined can mean nothing but good things moving forward.


Yes Apple’s bread and butter. A huge part of earnings though many see as a negative since Samsung (SSNLF.PK) has claimed the crown as largest smartphone seller in the world. My reply? So what. See the tables below and I will explain.

Top Five Smartphone Vendors

(Units in Millions)

Vendor Q4 2012 Q4 2011 YoY Change
Unit Shipments Market Share Unit Shipments Market Share
Samsung 63.7 29.0% 36.2 22.5% 76.0%
Apple 47.8 21.8% 37.0 23.0% 29.2%
Huawei 10.8 4.9% 5.7 3.5% 89.5%
Sony 9.8 4.5% 6.3 3.9% 55.6%
ZTE 9.5 4.3% 6.4 4.0% 48.4%
Others 77.8 35.5% 69.2 43.1% 12.4%
Total 219.4 100.0% 160.8 100.0% 36.4%

Top Five Total Mobile Phone Vendors

(Units in Millions)

Vendor Q4 2012 Q4 2011 YoY Change
Unit Shipments Market Share Unit Shipments Market Share
Samsung 111.2 23.0% 99.0 20.9% 12.3%
Nokia 86.3 17.9% 113.4 24.0% -23.9%
Apple 47.8 9.9% 37.0 7.8% 29.2%
ZTE 17.6 3.6% 20.6 4.4% -14.6%
Huawei 15.8 3.3% 13.9 2.9% 13.7%
Others 203.8 42.3% 189.5 40.0% 7.5%
Total 482.5 100.0% 473.4 100.0% 1.9%

If you review the first table, yes Samsung did oust Apple as largest smartphone seller. But look at the fine print. Apple vastly improved its shipments for QTR4 year over year. In fact they grew by over 10 million units for nearly a 30% increase over 2011. Another factor to keep in mind is that Apple never (at least I have never seen) discounts its new products. So margins stay relatively the same for the most part. And the older products (think iPad2 and in this case iPhone 4) continue to sell well which makes for a longer sales cycle. Apple’s items stay popular even when the newer models come out.

Reviewing the overall mobile phones sold, you will see smartphones are definitely the wave of the future. Samsung, Nokia (NOK) and Apple are the leaders in total phones shipped. Even the market share Apple held here grew up to nearly 10%, another 24% higher than the year before. It is because more and more people want smartphones as opposed to the traditional cell phone. So even though Apple has lost the market share lead in both categories, they still are selling more units than before.

Smartphones seem to be the hot item vs. the traditional cell phone. With talk of Apple offering not only a more cost effective iPhone which can compete with the lower cost competition and the anticipated release of iPhone 5, I believe Apple will continue to move more units year over year even if Samsung continues to hold the lead position. By doing that, they should continue to see growth in this their largest area.

Growth and PE:

Let us be honest for a minute. How many of you believe Apple products are still not on the cutting edge and still maintain a competitive advantage to most other products out there? This company is still the leader in many areas. It also is a company that is still growing massively.

(click to enlarge)

As you can see from the graph on the linked article above, the company is still growing double digit. Many competitors die for growth (17.65% recently) like you see here. Except for a small slowdown in late 2009, the company IS the juggernaut many of us believe it is. With a P/E in the 10 to 11 range, the company not only is healthy with lots of cash and growing earnings, the price is cheap.

How many companies are out there paying a 2% dividend (maybe higher sooner than later), have a $450 billion market share and are priced under $500? As an example of a solid company similar in price to Apple, Google (GOOG) has a market cap of $260B (nearly 1/2 of Apple’s) and is trading at $780 whose net income was about 1/5th of what Apple had this past quarter? A P/E of 24? The numbers show that Apple is still undervalued which means financially it is a steal at the current levels.

My overall take on Apple is to grab it (or options on it) while you can, anything below $500 is a steal. Healthy companies with cash and the superior products (and future pipelines) Apple has are rare these days. Do not let this Apple fall far from your money tree.

Additional disclosure: I am short SPY


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s