5 reasons to buy Apple after iPad event
The new incarnation of the tablet is slick, but that's only the beginning of why the company's stock is great.
By Jeff Reeves
Apple (AAPL) was the center of attention Wednesday -- isn’t it always? -- at a press event in San Francisco. Consumer electronics fans were eagerly awaiting iPad release news, especially the date that the new tablet will be available.
They weren’t disappointed. The new iPad will include a host of features, including a slick new display, HD video recording and voice dictation.
But for investors, this in-demand gadget is only one tiny reason you should snap up this excellent investment for your portfolio. Here are five reasons Apple is better than ever:
Fair value. The biggest criticism of Apple as an investment is that AAPL just never seems to quit. Up 50% in the past 12 months and up 500% in the past five years, it has to cool off eventually, right? Well, maybe not. The important thing is that profits are rising just as fast as the stock. Based on predictions of $49 per share for fiscal 2013 earnings, Apple has a P/E ratio of under 11. The historic average for the S&P is 15, and right now the trailing 12-month operating P/E of the S&P 500 stands at 13.9. So Apple is actually a bargain compared with many other stocks, at least by this metric.
Stunning cash hoard. Last quarter, Apple reported $30 billion in cold, hard cash on its books. It has $67 billion more in long-term investments. Total hard assets at the company are about $138 billion. So that’s what this company is valued at without a single iPad sales receipt! It makes it easier to understand how this company can be worth so much and sit on the top of the heap as the largest publicly traded U.S. stock by market cap.
No sales fatigue. Apple revenue has tripled from fiscal 2008 to fiscal 2011, from $32.5 billion to $108.2 billion. That’s in part because the iPad juiced numbers and also because the iPhone remains a tremendously popular item. Even with "old" products like its iPhone smartphone that have started to see competition from devices powered by Google (GOOG) and its Android operating system, the iPhone is a powerhouse, selling a record 37.04 million iPhones in the fourth quarter of 2011 -- a 128% increase over Q4 2010. Not only is the iPad growing fast, but the iPhone continues to see momentum in the U.S. That’s to say nothing of emerging-market potential -- consider that the iPhone 4S sold out preorders in a mere 10 minutes when it became available in Hong Kong last November.
The smart money is still buying. So is it just suckers like me buying Apple? Not quite. Consider that this week Barclays Capital just bumped its 12-month price target on Apple stock up by 13% -- from $630 to $710 per share. Even if you don’t want to believe in the new target, $630 still is a nearly 20% gain from here. Not bad. This is after a February upgrade to the stock from Oppenheimer, which put an "outperform" rating on AAPL. Clearly, institutional investors aren’t scared of owning Apple even after the impressive run of the past few years.
The future beyond PCs: The new iPad may not blow away some folks, since it isn't a complete reinvention or a brand-new gadget. The new iPad does have a host of new features though, and it is testament to the company's ability to re-create its successes. The incremental improvements in each model also provide a bump to sales, since gadget junkies continually run out for the next great model. Apple may not need to reinvent the success of the iPad or iPhone to maintain its dominance. All it has to do is keep improving incrementally. But don't think Apple is resting on its laurels. There's a reason the tech company started Wednesday's event with a fancy new Apple TV. It just goes to show that even while the masses clamor for iPad and iPhone news, Apple will never quit seeking the next big thing.
Apple is also one of my 5 editor's picks for March.
Jeff Reeves is the editor of InvestorPlace.com. Write him at email@example.com, follow him on Twitter via @JeffReevesIP and become a fan of InvestorPlace on Facebook. Jeff Reeves holds a position in Alcoa, but no other publicly traded stocks.
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The company has made at least 4 acquisitions in the space, and few people have paid any attention.
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