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This Stock Gave Investors 5,460% & It’s About to Do It Again
by David Fessler, Advisory Panelist
Friday, April 10, 2009: Issue #976
Editor’s Note: Correction, AAPL did not have a 57,000% return. At it’s split and dividend adjusted amount it’s returned 3,859%. At it’s 12/28/2007 peak, AAPL’s best return was closer to 5,460%. We apologize for the over-zealousness of the decimal point, but stress that this doesn’t change our opinion of AAPL one bit.
This 33-year-old company dominates the consumer market spaces it competes in… has no debt… and is sitting on a cash pile of over $25 billion. In the face of the current recession it continues to do well – unlike many of its competitors.
Back in 1982, you could have purchased 100 shares of this company’s stock for $160. Those same 100 shares would be worth roughly $92,000 dollars at today’s split-adjusted share prices.
That’s a 5,460% return, something most people won’t ever see in a lifetime of investing.
Fortunately for us, this company’s prospects are only looking brighter. In fact, it has plenty of space to grow and do it all over again. And it won’t matter whether you’ve been there from the beginning or jumping into the bandwagon today – the ride looks to be profitable nonetheless.
Let me show you a few reasons why this stock belongs in everyone’s portfolio…
Ignoring Competitors and Analysts
Today, its bewildered competitors plod along, introducing ho-hum, cheap, “me-too” products in a vain attempt to undercut its expensive prices and its ever-increasing market share.
Most of these attempts are pitifully ineffective. Regardless, this company just ignores them. Always executing from a tower of strength, it defines and controls the markets it operates in, rewriting the rules for the other players.
In addition, it creates new markets where none existed before… paradigm-shifting consumers’ lives and thought processes.
The company’s uniquely distinctive advertising and its incredibly thoughtful, aesthetic product designs give it a unique position in the consumer electronics industry. One that it’s not likely to give up anytime soon, if ever.
Numerous analysts have predicted the company’s demise over the years, saying its products are too expensive and won’t sell well in recessionary environments, that it’s a “one man show.”
The company’s response? It ignores the analysts, too. Because they just don’t get it.
You see, it has something that most analysts don’t possess and never seem to be able to put a proper value on:
- Long-term creative vision
- The will and confidence to ignore all the pundits and nay-sayers
- A first-class management team to drive the execution of its secretive plans
Apple: The Foremost Consumer Electronics Leader
If you haven’t already guessed, I’m talking about Apple, Inc. (Nasdaq: AAPL), the foremost consumer electronics company in the world. And its stock belongs in everyone’s portfolio.
Granted, I’m a little biased. I’ve owned its products since the 1980s and just can’t imagine living without them.
Its customer base is made up of students, educators, businesses, government agencies and consumers of every sort. The company’s business strategy centers on its ability to design and develop not only its products, but the software operating systems they run on.
Its Mac computers are first class, easy to use and run all the popular software found on Windows machines. And they run those programs better and without all the viruses, spyware, malware and hacker attacks that constantly plague Windows users.
I’ve converted several long-time Windows users to Macs, and once they saw how easy they were to use – and how few problems they had. Afterwards, they wondered why they hadn’t switched over long before.
The company single-handedly redefined the entire music business with its iPod and its iTunes music store. And it did it in a relatively short span of four to five years, generating billions in annual revenues in the process. Its share of the mp3-player market remains well above 75%.
Now it’s doing it again with the iPhone, the slickest smartphone on the market. Sales of the device grew 245% in 2008, according to a Gartner research report. That compares to 96% for Research in Motion and a paltry 0.8% for Nokia.
While the iPhone is number three in terms of overall marketshare (8.2%), it’s clearly growing the fastest, and could easily overtake Nokia and RIM in a couple of years.
In the simplest of terms, Apple has figured out how to create products that most people would design if they could give their two cents to the Apple product development teams. They’re simple and easy to use, just like everyone wants them to be.
Apple’s Cash Cow Just Keeps Getting Bigger…
Apple’s second-quarter financials will be released April 22, in what is always a highly anticipated conference call. The company constantly downplays future expectations when talking to analysts, and then routinely beats them by a wide margin.
This quarter’s results will be particularly interesting, as it will give investors a better idea as to the effect the recession is having on the company. Sso far, Apple has appeared to be somewhat resistant to its effects, helped in no small way by a constant stream of new product innovations and introductions.
However, one of the major sources of future revenue is constantly overlooked by analysts. Whenever the company sells an iPhone, it only books about 10% of the money it receives as revenue, and defers the rest.
It then books this annually over a period of 10 years. This is a constantly increasing future revenue stream that’s like cash in the bank. Great for when times get a little tough.
And then there’s the “Apple effect.” This is logic that goes along the lines of: “If Apple’s (iPhone or iPod) is this good, its computers must be great, too.”
That phenomenon has analysts betting the company will sell 2 to 2.2 million Mac computers for the January-March time period. The company has plenty of room to grow here, too, as it currently has under 10% of the overall PC market.
Given how well the company has been performing so far during this recession, it appears that shares are still cheap. Investors interested in owning a few shares might want to wait until after this quarter’s results are announced on April 22, as there is generally a pullback in the stock after earnings results.
Apple is certainly on top of its game, and I believe it will continue to stay there as long as it continues to make the rules that all its competitors have to follow.
Good investing,
David Fessler
Today’s Investment U Crib Sheet
As we’ve moved into what looks like a recovery, it makes sense to start scouting investment ideas to put your sidelined cash to work.
Yesterday, Dave showed us another excellent stock in the Stock of the Day: Corning (GLW)
Last week he talked about the solar panel industry and the prospects for the sector “The Fastest Growing Energy Source In The World.” He also highlighted his favorite solar company.
In new bull markets, small cap stocks traditionally do the best. It’s why Louis Basenese has been recommending a new type of small caps stocks. Called White Caps. These fast moving companies are the very definition of hot small cap movements. He showed us a number of ways to find them, and 7 Reasons the Bear is dead yesterday.
- Why You Need to Buy Apple and Sell Palm Short
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- Let Hype Take A Bite Out Of Apple Shares Before You Buy
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2 Responses to “This Stock Gave Investors 5,460% & It’s About to Do It Again”
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David Fessler is an Advisory Panelist for Investment U and The Oxford Club, one of the world’s most exclusive and prestigious networks of private investors.
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April 11th, 2009 at 11:58 am
Who is Steve Jobs and why does his health drag down Apple?
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April 11th, 2009 at 6:25 pm
“It then books this annually over a period of 10 years.”
Good info, but this is mistaken.
Apple books 1/8 of the revenue for each of 8 quarters; 2 years, not 10.
Reply