It’s time for another In Focus post here at Rising Returns. Today we’ll take a look at one of the true monsters of today’s world: Apple Inc. (AAPL). I’ll start off by saying that this will not be an exhaustive look at AAPL by any means. It’s more of a lite version of an In Focus post. AAPL is too big and I’m too tired to do a fully researched and completely comprehensive analysis of AAPL. This will be just one more little post to add to the library of AAPL writings that are out there in the world.
As I’m sure all of you know, AAPL is a consumer electronics company. In fact, AAPL is kind of king when it comes to consumer electronics. So much has been written about this company over the last several years – it’s hard for me to know where to even start. Let’s start with simply looking at the stock price for AAPL over the last 10 years:
This is a pretty remarkable chart. With the exception of a 2:1 split in February 2005 (the green S on the chart), AAPL has not split it’s stock during the last 10 years. Instead, the company has seen it’s stock price grow from 3.73/share on December 6, 2002 to 586.19/share when the market closed on December 3, 2012. In case you’re not great with numbers that have lots of zeroes after them, I’ll spell it out for you: that’s an increase of over 15,715%! Yes, you read that right. That’s absolutely stunning. How did AAPL manage this? Without getting into things that are difficult to quantify and objectively meansure such as management, Steve Jobs, style, etc., there are a couple of words that will quickly explain how AAPL pulled off this incredible feat: MacBook, iPod, and iPhone. When you go on the kind of product run that Apple has been on, it’s not difficult to see why the stock has increased nearly 16,000% in a decade.
Beyond the realm of numbers, AAPL is run very efficiently. Their manufacturing is done very inexpensively at offshore locations (which is another topic about which much has been written), and AAPL prices its products at the very highest end of their respective categories. They have chosen to pursue a premium pricing strategy, and it has paid off for them in a very big way.
How does AAPL look in my dividend stock screener? Here is it:
That might be a little hard to see – if you click on the image it should bring up a bigger version of it. What’s the takeaway from the simple analysis above? I think AAPL is fairly valued in the $750 range. Now before you jump all over me, understand that my number has dividend increases of approximately 8.5% built into it. Since AAPL just recently began paying a dividend, there is obviously no history to support that assumption. Why do I think it’s reasonable? For one, AAPL is sitting on a massive pile of cash and can easily afford to pay it. Right now, the company has a dividend yield around 1.8% and a payout ratio of roughly 6% – plenty of room for growth there, especially for a company with huge revenues and very large strong cash position. Think about it – AAPL earns in the neighborhood of $44/share. That’s huge, really huge. This company basically prints money and has a tendency to sit on that cash. They just recently began paying a dividend, most, I believe, to kind of throw a bone to investors and do something helpful with all that cash.
My recommendation for AAPL is to do some research. Consider the following: AAPL is in a notoriously fickle and difficult industry. AAPL has a tremendous track record of introducing high quality products that are priced at a premium, and it sells a ton of those products. AAPL recently went through a major change in management and the jury is still out on the future products that are in the pipeline. There is a lot to like about AAPL and a lot to think about before making an investment.
Hopefully this will spark you to do your own research. I want to research a lot more – how does each business line perform? Are there sustainable cash flows outside of product sales (iTunes?)? What’s the next product that will blow the roof off of the electronics industry?
Full disclosure: I have a very small long position in AAPL and I do plan on adding to that position in the future.
What do you think? Any thoughts or feelings on AAPL?