Writing about Apple ( NASDAQ: AAPL) is really a fun exercise and also frustrating. It is with hilarity that I watched so many negative people try to "pull the strings apart" on the Apple story for the past couple of years. So many are trying to get that "ah-ha" moment so they can proud as peacocks say " see, I told you." Yet the stock and, more importantly, the story just keeps going on and on. Cisco (NASDAQ: CSCO) had the same thing happen to it in the 1990s, all the while the stock got to be over a $500 billion market capitalization. Apple IS the Cisco of this decade, only better.
Cisco was one of the most magnificent performers of the 1990s: investors made 30-40 times on their money. All the while, there were those so-called experts "who never got it" and tried so hard to kill the story. Any little, tiny insignificant item regarding Cisco was blown up as if the company had just robbed the US Mint. They went all over the media bad-mouthing, kicking Cisco, and yet, the company kept performing and exceeding expectations. Long term shareholders just smiled all the way to the bank.
Before any one gets excited and says "yeah, but from 2000-2003 the stock got killed" -- you are right. The conditions for Cisco's slowdown and temporary demise were industry in nature with a massive general slowdown. The great technology names came down with the not-so-great. The difference between Cisco then and Apple now is Apple's valuation is reasonable and comforting. Cisco had its days trading at a 100 PE ratio -- absurdly high and certainly not sustainable. Apple's PE at "these lofty levels" is 30 times September 2008 earnings expectations of $4.50.
Another compelling reason why Apple is a buy for the next 3-4 years is this company knows how to manage product flow and product upgrades. Even Cisco could learn from these masters. Apple reduced the iPhone price by $200 and the first thing I heard from an investor who of course has missed this stock entirely, was " iPhone is not selling, they cut the price." Yeah, sure, that's why Steve Jobs, the master of under-promise--over-deliver, said they were on target for one million iPhones sold by end of September.
iPod has sold 110 million units and over 3 billion songs, and iPhone is almost at 1 million units sold since release. Where do you think iPhone sales will be in 2 years? 3 years? 5 years? Huge and delivering earnings consistency.
I wrote in my 2006 book "Stop Losing Money Today" that Apple would eventually have a "cell phone" product, and would do it better than anyone else. I also wrote that Apple will own the MP3 market, which they do, and would offer wireless delivery of songs, which they announced today.
Apple's market capitalization is at $120 billion and on its way to $250 billion over the next 3-5 years. I have written in the past that Apple will pass up IBM (NYSE: IBM) and Intel (NASDAQ: INTC) eventually in market cap size. IBM is currently at $160 billion and Intel at $151 billion in respective market caps. I believe Apple will surpass them both before summer 2008...
Georges Yared is the CIO of Yared Investment Research and the author of "Baby Boomer Investing...Where do we go from here?"
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Reader Comments (Page 1 of 1)
9-06-2007 @ 1:12AM
Market Flavor said...
I completely agree with you. The one thing people also tend to overlook is how incredibly popular apple computers are becoming.
http://www.marketflavor.com/blog/
9-06-2007 @ 9:27AM
August said...
With your comments founded in fact and intelligent analysis, these are good points all, Georges and a spot-on comparison.
It is maddening for me when naysayers take a shot at a good company only for the opportunity to be seen in print or to energize churn at their brokerage firm. As an old-school comedian, Flip Wilson used to say, "The Devil Made Me Do It." Maybe that is the case with these angry little wannabe destructors of sound investment. It was with Cisco I first became aware that pockets of the investment community, (and their media counterparts), were infested with this notorious, manic-depressive spore.
Any reasoning person, when presented with FACT... (straight, TRUTHFUL news, nothing more), should be able to ascertain that Apple, like Cisco in its time, is a solid, forward reaching company with many more songs to sing... especially given that Apple is uniquely conversant in any communicative, musical or media integration and now totally fluent in PC patois. All fact, all easy to discover and all pointing up.... it's there to see if not shadowed by those who would rather whine than study.
Thanks again for the FACTS, Georges. You'll always reach the sky because you know which direction it lies in.
Thanks for listening,
August
9-06-2007 @ 10:58AM
Beltway Greg said...
I basically agree, but Apple's treatment of the individuals who shelled out $599 for the Iphone is pretty shabby and it wouldn't take much to do right by these people. Maybe not a complete rebate but perhaps a coupon that could be used for a $200 discount on merchandise. You can come at this from a number of different angles but the truth of the matter is that the folks that stood in line and paid the big bucks for something that was quickly discounted are probably individuals who go out and spread the good word about Apple and therefore should be given some type of incentive. My guess is that they passed 1 million phones last week and had previously worked certain discounts related to manufacturing and sales into their contracts with suppliers and maybe even AT & T. Instead of large margins on low volume they're now making more money with an increased volume of sales and in addition Apple isn't canibalizing its own product line. I've spoken to folks that work for both AT & T and Apple at the various stores in the Washington, DC and metro Baltimore areas and they said the products were flying out the door. The next earnings conference call is going to be huge in regard to the direction of the stock price going forward into the holiday season.
Beltway Greg
Still long and strong.