Apple’s (AAPL) stock has been off to a tough start to the year so far as you can see in the below chart. It continues to generate tons of opinions, from believers, bears, dividend investors and even activists. I’ve personally been a believer and while it’s been a great bet in the past few years, this year is not turning out as well. That being said, I’m likely going to be taking a bigger long term position on Apple in the coming days. Why?
Upside vs. Downside
I always look at possible investments in terms of the potential upside vs. downside. In Apple’s case, let’s start off with some numbers:
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So basically, Apple is trading less than a 10 P/E ratio. To give you an idea, AOL(AOL) and Microsoft (MSFT) both trade at comparable P/E ratios, but are growing revenues and earnings per share at a fraction of Apple’s growth.
The vast majority of Apple’s revenues come from sales of iPad and iPhone devices. They have both lost market share but remain at or near the top in fast growing markets so to say that Apple’s growth will decline might be true but there’s still a lot of growth left, no doubt about it.
My argument also relies on the possibility that Apple will come out with a few more big products.
–Yesterday, Brian White of Topeka Capital Markets published research saying that Apple will launch a 60 inch Apple TV later this year (that would also come in 50 and 55 inches) that would be synced with smaller screens/tablets for users wandering around the house among other features. If you remember, Steve Jobs had hinted he had figured out how to do TV.
–There have been many rumors that Apple is working on an iWatch.
–Apple still has a lot of expansion planned for its existing products such as having T-Mobile start selling the phone, expansion in China and other markets, etc.
These and other products might not make it. But think of the past few things that Apple has launched.. iphone, ipad, macbook air. Not that bad right? Don’t you think there’s at least a shot that new products give a boost to short-medium term growth?
Yesterday, following that research note, Apple outperformed the Nasdaq by a decent margin. It’s certainly possible that the report ends up being wrong, but if such rumors start coming out, the stock will rise significantly. If you want to wait until official announcements come out, chances are that you’ll miss almost the entire rally. With little to lose and a lot to gain, I’d argue that this is a great time to go long Apple.
Disclaimer: Currently long Apple (long-short trade vs NILE) and will likely go longer in the next few daysIf you liked this post, you can consider subscribing to our free newsletters here