Living in an Apple (AAPL) world and what it means for the stock

By: ispeculatornew
Date posted: 06.18.2010 (5:47 am) | Write a Comment  (11 Comments)

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About 3 weeks ago, I took a long position on Apple against online jeweler “Blue Nile”. I got a few comments both on that post and on Twitter about the stock being overvalued and how it was time for it to tank. Like any other investor, I am often wrong, that is why I use stop losses strategies on all of these trades. That being said, I don’t like the argument about a stock like Apple going to decline simply because it has gained too much.

Apple might go down, but not just because it went up too quickly. I know, many technicins out there simply look at charts, but you do still have to consider the fundamentals right? Apple continues to trade at a reasonable P/E ratio despite exploding sales.

Why are sales exploding?

Apple has been “In” for a few years now and its products have been desired all around the world even in difficult economic times. The more surprising trend is that this tendency seems to be “exploding” instead “fading”. Here are a few examples all taken within 3 days… and there are probably many more examples.

-Yesterday I come into work and my two colleagues were discussing buying an Ipad. One of them went to an Apple store the previous night to buy one. He had to wait in line to finally be told that none were left. The option he took was to put his name on a list. When the store receives new Ipad’s, he will be contacted and will have 24 hours to come purchase it. There are thousands of people in front of him on this list and yes he did ask if other nearby stores had any. They don’t. He asked for a time estimate but they did not know. They said it could be 2 weeks but right now, Apple is not able to produce fast enough to keep with the demand. My other collegue decided to also get one and ordered it on the website…. We are talking about a product that costs over 500$ but it’s selling as if it was a hot bun.

-There is also my father, who had ordered his Ipad over a week ago. He received and showed it off. Everyone was impressed. Not only did it look amazing, but even better… it is almost impossible to get right now because of the shortages. It is as if buying an Ipad was finding a treasure. Except you are paying a hefty price to Apple…

Oprah Winfrey made the news yesterday because she made an incredible gift to the employees of her magazine giving them 10,000$ and an Ipad to thank them for their hard work. This type of news is not only good advertising for Apple, it also shows how powerful the brand is. To give 10,000$ was not enough, Oprah Winfrey wanted to give something that had meaning and that everyone on her staff would want to have. The Ipad was her choice. Not a book, not the Kindle, not a phone, but an Ipad. That speaks volumes

-Also this week came the news that not even 48 hours after starting selling the Iphone 4, both Apple and AT&T suffered major system failures and had to stop selling because of those failures but also because they were running out of stock. Had they missed the boat? They actually sold 10 times more phones than expected… amazing. A Morgan Stanley analyst even predicted that Apple would have 100 million Iphone subscribers within 18 months… Just this morning, Softbank, who deals with Iphone orders in Japan also announced it was halting orders as it is unable to keep up with demand. This is a worldwide phenomenon…

What does all of this mean for Apple?

Of course, what everyone has figured out is that this means tons of revenues in the coming months for Apple. But what many have not thought about is that revenues will come for a long long time also. Generally, Apple users remain with the product and also purchase books, music, apps, etc. All of these products cost almost nothing to Apple who simply gets its cut every time a sale is made. Not a bad business model hey?

Where is Apple’s stock headed

Apple has many opportunities ahead as its user count continues to increase. Can you imagine if the company can start brokering ads to display to those 100 million users? The possibilities are almost endless and honestly I think that the stock will continue to rise despite the fact that it is already reaching high’s.

What are your thoughts?

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  1. Comment by crobi — June 18, 2010 @ 6:35 am

    You are totally right. The people does’nt see that does’nt understand Apple. YOU understand Apple. But I can ad some point:

    The mac… with between 5 to 10% of market share worldwide, the possibilities of growth is huge. People all around me switch to mac these time.

    The iPhone has not the bigger market share yet, the possibilities is huge again here and it seems iPhone 4 will help this in the near future to dominate. Competition is just not there yet.

    I think your right, I got share since 2005 and the gain give me money to buy Apple product for the rest of my life 😉 but I keep them just for all those reason.

    Imagine when Apple will invest in TV set. They said no but I’m sure it’s coming. TV set connected to internet are not good for the moment like the MP3 player before the iPod, like the PC before the mac, like the cell phone before the iPhone,

  2. […] Living in an Apple (AAPL) world and what it means for the stock … […]

  3. Comment by Doctor Stock — June 18, 2010 @ 8:30 pm

    Very nice… I also took a long position in apple… in fact, I never got rid of it since my purchase in the 190s. I added recently at around $250 and I expect it will continue to climb. Cheers!

  4. Comment by IS — June 19, 2010 @ 6:02 am

    @Crobi – yes very true. That is something I did not really discuss in the post but users that try the Iphone and Ipad are more likely to move from PC to Mac and that does make a big long term impact

    @Doctor Stock – wow, nice trade no doubt. Do you feel like you will keep it going for a while or do you have an exit in mind?

  5. Comment by pik — June 20, 2010 @ 3:32 am

    I think that with a lot of people using this IPad thing a lot of problems will come out, problems that will be difficult to solve like security leaks, hardware failures. An other point is that a lot of people bought the IPad because is cool, but they didnt’ know why exactly. Hardware problems have been an issue for many apple mac users, I have friends that without the super insurance 5 years etc would have had to spend thousands of euros in reparations. And they are not happy to tell you this, because they are really apple people. And this is one of my points, apple people are *sort of* religious fanatics that think that their way is alternative, but for me is just the same story with other clothes. When this religion will be analyzed by a major number of people it will show its flaws, and everybody will realize it, all at once. Something that sounds a little bit like the tulips story of holland.

    So my opinion is that the positive points are already in the stock price, that is now at all time high with a market that is not really clear in its direction. In february apple going to new high 216 after the crash was the sign of the start of the march-april rally. This time ? I saw no nice figures for employment and indexes last week.

    Remember also the flash crash to 200, not nice as well. How many stop losses have been eaten ?!?

    I would wait the short coverings of these days, see it go up an other i% in x days..and then in day z/y/2010 go short.

    Then, if the market crashes again lower than before, all these thinkings become obviously useless, since also my cat knows there will be no pity for this stock.

  6. Comment by Doctor Stock — June 20, 2010 @ 3:32 am

    @ IS – In the short term, I don’t see it slowing… I’ll watch the technical indicators to help me exit (but I’ll use the weekly charts). Daily technicals can be too volatile in these market conditions. I use these indicators rather than targets… although it wouldn’t surprise me to see it break past $300 by the end of summer.

  7. Comment by IS — June 20, 2010 @ 7:47 pm

    @Doctor Stock – Makes 100% sense. Which technicals are you looking at exactly? Moving average?

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