Stock of the Day - January 10, 2009

Apple Inc. (AAPL)

Apple Inc (AAPL) is a leading provider of hardware and software, selling and designing products such as the Macintosh computer, the iPod, and the iPhone.  Apple’s stock price has been cut by over 50% this year due mostly to macroeconomic reasons, as its 52-week high was $192.24 and it is currently trading at $90.58.  I believe there are 5 extremely important factors that will greatly influence Apple’s stock price in the coming months and years.  I will go through each of these factors in detail to help you better understand what will make Apple’s stock go up or down in the future, and whether or not investing in Apple is a good idea.

(1) Steve Jobs, the CEO and co-founder of Apple, is crucial to the success of the company.  He is a great leader who is credited with many of the amazing innovations that Apple has brought to the market.  Because of his importance to the company, he is also extremely important to the company’s stock price.  A respected writer for Business Week claims that “there is a premium of anywhere from 15 to 25 percent built into Apple’s share price because Steve Jobs is the CEO.”  So, if Jobs were to ever unexpectedly resign due to health reasons, Apple’s stock would be absolutely crushed.  It is not too bold to say that Jobs’ health is in doubt, as rumors have been swirling around for a very long time.  The CEO, who used to have pancreatic cancer, looks weaker than usual and he has been losing a lot of weight recently due to a “hormonal imbalance”.  Personally, it scares me when someone so important to a company has these types of health problems, and it automatically makes me more wary of the stock’s potential.

(2) The smart-phone market is becoming extremely competitive as the big players in the market are regularly coming out with better phones.  After Apple came out with the iPhone 3G, Research in Motion (Blackberry) came out with the Storm and the Bold, and Palm just recently released its newest phone, the Pre.  The iPhone’s biggest competitor is and will probably be the Blackberry Storm, as it is a touch screen phone as well.  In the battle between the iPhone and the Storm, I definitely think the iPhone will win out.  The Storm just isn’t that great of a phone from my first-hand experience and from multiple surveys, as only 33% of Storm owners said they “very satisfied” with their phone in a ChangeWave survey.  When the original iPhone came to the market in 2007, 77% of iPhone owners were “very satisfied” with their phones.  I think this disparity in satisfaction says a lot about the future of the two phones.  It sure seems like people like iPhones more than Storms, and this preference will play out well for the iPhone in the long term.  When combining consumer preference with the fact that the iPhone’s market share in the smart-phone market has been growing at an explosive rate (currently at 22%), the future looks bright for the iPhone and for Apple. 

(3) Macintosh computers, including the popular MacBook, accounted for 44% of Apple’s total sales in 2008.  While Apple still has a lot of work to do to become the leader in the U.S. computer market, its market share in the U.S. has grown from about 3% a few years ago to 8% in the 3^rd quarter of 2008.  The upcoming year will be important for both Microsoft and Apple, as they are both coming out with new products.  Microsoft will introduce “Windows 7” to the market soon, and Apple is also expected come out with “Snow Leopard” sometime in 2009.  From the research and reading that I have done, it looks like both of these upgraded softwares are going to be impressive.  The thing I like about Snow Leopard is that it will be able to easily transfer a lot of Windows programs that were once exclusive to Windows, thus allowing more people to make the switch from Windows to Macs without a problem.  The computer market has obviously been hurt due to the state of the economy, but when the economy turns around, it will be interesting to see which operating system garners more attention.

(4) The iPod is Apple’s most dominant product, as around 70% of all MP3 players are iPods.  They have become must-haves in today’s world, and many people have more than one.  The iPod’s name recognition is so strong and it is such a popular device that it helps Apple’s brand awareness for the company’s other products.  People have become familiar with Apple because they see the iPod everywhere, and this exposure has led more people to be interested in iPhones and MacBooks.  iPod’s have become so popular that they are as fashionable as they are functional, and I think that iPod sales will continue to be strong for many years to come.

(5) The final factor that I believe influences Apple’s stock price is the company’s image in society as an innovator.  The company has an image of being trendy and cool that its competitors wish they could match.  Both the iPod and the iPhone have left competitors eagerly trying to match them with products such as the Microsoft Zune and the Blackberry Storm, but no one has been able to achieve the same image that Apple has.  Granted, Apple spends a ton of money on advertising, but it is worth it considering how strong their image has remained and considering how popular they are among younger generations.  I have a MacBook, and I would say over 75% of my classmates have them as well.  As our generation grows up and goes into the workplace, I believe we will keep our love for MacBooks alive.  If what I am saying comes true, Apple will continue to see unbelievable growth for many years to come, as more and more people will continue to switch from PCs to Macs.

So the question becomes, should you buy Apple?  With the company’s impenetrable brand image, and with its extremely popular products that will continue to grow in market share as the years pass, I think that Apple is one of the best long-term investments in the stock market.  I wouldn’t buy it yet, though, as the bad economy will pull the stock price down a little further before it moves back up.  Personally, I will buy shares in Apple the day that it gets to $80 or below (it is currently trading at $90.58).  Lets hope it goes down that far, and if it does, I urge you to pounce on the opportunity to make some money with me. 

 

Niki Pezeshki

College Trillionaire