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It's Time to Get a Bargain on Apple Stock

Companies / Apple Sep 09, 2014 - 12:22 PM GMT

By: Money_Morning

Companies

Michael A. Robinson writes: Ed Butowsky is going to owe me a steak dinner.

Butowsky is the managing partner at Chapwood Investments. He's a good guy. And we often cross paths during our appearances on cable finance programs.

During our most recent get-together, we got into a spirited debate about one of my favorite tech stocks: Apple Inc. (Nasdaq: AAPL).


As you folks know, last year I predicted that Apple would hit $1,000 a share ($142.85 post-split) by Labor Day 2016. And I've doggedly stuck with that projection.

Butowsky likes Apple, too. But he argues that intense competition will keep the share price from hitting my target anytime soon.

So the wealth manager and I decided to settle this good-natured disagreement the only way possible: with a steak dinner bet.

When my deadline rolls around, I'm betting I'll be dining on my favorite meal. (Note to Ed: I like my filet mignon cooked medium rare.)

But you'll be an even bigger winner...

This Hype Is Real

Apple's shares dipped a bit last week because of the Labor Day weekend news about the leaked celebrity photos.

However, if you've seen the product-unveiling event the company is putting together at the Flint Center for Performing Arts in Cupertino, Calif. - where the late Steve Jobs unveiled the original Macintosh in 1984 - you understand why I still believe this stock is good for a 40% pop in the next two years.

All of which means that there's likely just a few more hours until the event, during which time you'll have what I believe will be your last, best chance to grab Apple's shares at a bargain price.

The computer trades, tech websites and Apple-centric publications are rife with speculation about just what the iDevice King intends to unveil at its showcase Silicon Valley event today.

That's to be expected. After all, early fall is when Apple usually debuts its new mobile products.

But this year is shaping up to be far more exciting. To longtime Apple watchers like me - I've been following Apple and the rest of Silicon Valley for more than 30 years - the choice of venue is highly symbolic.

Also telling is that the Flint Center has more than double the capacity of the places where Apple usually reveals its new product.

That choice of venue has the company's intense fan base in hyperdrive wondering what Apple CEO Tim Cook has in store.

The smart money is betting on bigger-screened iPhones and iPads, a new iWallet mobile-payments system, and the introduction of the long-rumored iWatch.

Ordinarily, I'd be dubious of all the hype surrounding the event. But there are plenty of indications that Apple does in fact have big plans for today.

Tim Bajarin is a longtime Silicon Valley analyst with whom I have spoken several times in the past. He believes Apple's choice of the Flint Center means something major is in the works.

"The historical significance suggests that Apple has another blockbuster product ready to be released," Bajarin says.

And consider the eyewitness account of Frank Mangini, a 73-year-old retired electrical engineer who lives in Cupertino. He told the San Jose Mercury News that on his Sunday walks over the past two weeks he's seen rapid progress on a massive construction project at the Flint Center.

"It looked like a sound stage going up for a rock concert," Mangini said, adding that he saw huge pipes with electrical cabling running into the facility. "It looks like Hollywood to me - there's a lot of money going into this."

No doubt, there will be a lot of money coming out of it as well. So, let's start with what we know will almost certainly occur.

Phoning It In

Apple has pretty much admitted it's going to reveal the new iPhone 6, which could begin shipping by the third week of September. And the company will also be releasing an update for its mobile operating system, dubbed iOS 8.

The new smartphone and OS are designed with helpful shortcuts in mind. For instance, take a picture on your iPhone, and it will automatically show up on all your devices.

Adding voice and video to smartphone messages will become much easier, and the device's touch-sensitive keyboard is also getting an upgrade that will make it more "contextually aware" of just what you are trying to accomplish.

I should probably address the "elephant in the room" here - the theft and distribution of celebrity photos associated with Apple's iCloud service. The perpetrators of these thefts did not "hack" or breach the iCloud to steal the photos in question, as has been reported. Instead, they stole them from the celebrities' accounts with ill-gotten IDs and passwords.

That may sound like hairsplitting, but it's an important distinction - and it's why Apple's share-price dip last week was only in the single digits.

However, security is a huge concern for all technology companies, and I know Apple is taking this breach seriously.

Back to Apple's new products, the new iOS 8-iPhone 6 marriage will make automating your home much easier from a single device. The platform also will have health apps built right in with more to follow.

I'm really excited about these steps into the smart-home and health sectors - which mark Apple's entry into the Internet of Everything. I discussed Apple's new HomeKit and HealthKit earlier this summer.

At the same time, expect larger screen sizes in the iPhone 6, increasing from the current 4 inches to 4.7- and 5.5-inch options. At the larger size, the device could be considered a "phablet" (and may be dubbed the "iPhone Air") - a hybrid smartphone/tablet.

Apple could easily sell 70 million iPhone 6's in the first six months of their release, as analysts have predicted. In the firm's two most recent fiscal quarters, Apple sold nearly 78 million iPhones.

The iPad Puts on a Suit

Meanwhile, get ready to take your iPad to the office. Right now, Apple's tablet is great for entertainment: reading, surfing the Web, and streaming movies and music.

Recall Apple's new alliance with International Business Machines Corp. (NYSE: IBM), however, which I told you about just a couple of weeks ago. That partnership is designed to deliver a series of new IBM business apps for Apple products.

The iPad figures heavily in that relationship because it's the only tablet on the market that ranks as a true enterprise-class device. That means the device is sophisticated and tough enough to pass the rigorous requirements of major corporations, universities, and federal agencies.

In that context, I believe the rumors of a new iPad with a larger screen make a lot of sense. The larger tablet (possibly dubbed the "iPad Pro") would likely have a 12.9-inch screen compared with the standard 11-inch.

And so, I wouldn't be surprised to see Apple unveil a productivity suite, à la Microsoft Office, for the iPad. That would not only improve the device's status as workplace hardware but also significantly boost sales.

Keeps on Ticking

Now then, the iWatch (or maybe "iTime") is clearly the product announcement that has garnered the most speculation. To me, the surprising thing is just how good a job Apple has done in preventing company leaks.

But that hasn't stopped the press from trying to get a big scoop on Apple's entry into the burgeoning wearable tech market, which is growing some 75% a year.

Citing Japanese news and industry sources, Reuters says Apple believes it can sell 3 to 5 million iWatches a month, or up to 60 million a year. In addition to various smartphone-like functions, Apple's smart watch, embedded with sophisticated sensors, will monitor such health indicators as blood-sugar levels, calories, and sleep cycles. (It will also tell time.)

I also wouldn't be surprised to see Apple finally announce an iTV. Apple recently integrated 4K editing technology into the MacPro, and 4K is the "next big thing" in high-resolution televisions.

Combined with the rich amount of content found on iTunes and the MacPro's reputation as the gold standard for video display, this could be a powerhouse combo for Apple.

And then there are those iWallet mobile payments, using near-field communication (NFC) technology. I plan to write more about that in the weeks to come. But here's a hint: Expect to be able to use your iWatch like a credit card.

All that said, Ed Butowsky remains skeptical. He scoffs at my predictions that Apple will hit $142.85 a share - or a split-adjusted price of $1,000 - in two years because he thinks the tech space is getting too crowded.

He makes a good point. After all, there's a lot of great technology out there - and I tell you about how to profit from it twice every week, here.

But some of the best tech players on Earth have gone up against Apple and gotten their heads handed to them.

For instance, Google Inc. (Nasdaq: GOOG, GOOGL) paid $12.5 billion in 2012 for Motorola Mobility to give it more control over cellphones featuring the search giant's Android mobile operating system.

While Android is the dominant mobile platform, with nearly 80% market share, Google had to throw in the towel on Motorola. It sold the division earlier this year for $2.9 billion, marking a loss on the venture of $9.6 billion.

So, it's not about the size or number of competitors out there. For Apple, it's all about selling great products that people love - and spend money on.

And that brings in high profit margins.

With a market cap of $592.44 billion, Apple is trading around $99 a share. It has operating margins of nearly 29% and boasts a 31.56% return on equity.

Last year, it generated free cash flow of $37 billion. With all that cash rolling in, Apple has announced $30 billion in new stock buybacks and an 8% increase in its dividend.

Add it all up, and I still firmly believe that Apple is well on the way to a split-adjusted price of $1,000 a share. And I'm on my way to enjoying a great steak.

Source : http://moneymorning.com/2014/09/09/its-time-to-get-a-bargain-on-apple/

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