Why are so many investors upbeat about Apple?

“Why are so many investors upbeat [about Apple Computer]? There’s still the possibility (a good one, in my opinion) that many iPod users will switch to Mac computers. Last quarter, Apple said that more than 45% of the customers buying computers in its stores are new to Mac. And the switch to Intel chips in new Macs — available six months sooner than previously anticipated — should allow the company to capitalize off its powerful tailwinds at the moment by marketing faster, more powerful Macs,” Alyce Lomax writes for The Motley Fool.

“Apple’s retail stores haven’t nearly reached saturation, and if you’ve been to one lately, you’ve probably seen for yourself what an ‘experience’ it can be. Last quarter, $1 billion of the company’s $5.7 billion in sales came from Apple retail stores,” Lomax writes. “IDC recently said that 106 million MP3 players will be purchased in 2006; at the moment, the iPod owns 70% of the market. Obviously, a big part of Apple’s future relies on the iPod’s continued dominance, since it’s significantly polished the Apple brand and spurred a possible ‘halo effect’ of increased Mac sales. There are plenty of high-powered rivals who want a piece of the MP3 player market; Sony, Dell, and Creative have competing MP3 players, and they’re drooling over the opportunity to woo consumers.”

“Last, there are the issues of whether Apple can attract new users to buy iPods and convince existing iPod owners to upgrade. It’s quite possible that many existing iPod owners won’t be willing to shell out yet another $400, again and again, for the latest model. (And how long will Apple be able to add must-have innovations to each new model?) All right, so here’s my final answer about Apple as an investment right now: I don’t know. I certainly don’t want to go on record saying, ‘Don’t buy Apple.’ I am impressed — the company has proved bears wrong for several years now while the iPod became an absolutely amazing phenomenon. However, it just seems nearly impossible to extrapolate what future growth rates will be,” Lomax writes. “In other words, a lot of things have to go right, and not many can go wrong. And of course, at some point, what’s known as the law of large numbers is going to kick in (it always does). That’s why I couldn’t pull the trigger on Apple as my Stocks 2006 recommendation. There are plenty of risks investors need to be aware of — maybe now more than ever. For now, I’ll keep on loving Apple the iPod Innovator. As for Apple the Stock? It’s been a great story thus far — one that I look forward to watching as 2006 unfolds.”

Full article here.

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25 Comments

  1. Apple won’t need a stock split soon. The way the stock has dropped, it will hit a post-split price all by itself!

    The question now is, if you’ve been waiting to buy, is now the time or might it be wise to see if it drops further?

  2. One reason you might be upbeat about AAPL is that there is plenty of upside for this stock. The Mac sales have been fenomenal but they will be much bigger once someone finds a way to run Windows XP in a virtual environment along side MacOS X on the new Intel based Macs. That would truly allow the new machines to be deployed in corporate infrastructures without having the negatives of the PowerPC based machines running VPC. And we all know there are still times you get forced to run Windows apps…

  3. The stock is dropping because Apple tried (responsibly) to temper investors from overheating the stock. Their ‘warning’ made people pull back. They are still on track for their second biggest quarter ever. EVER!. The next gen iPods and the digital living room strategy hasn’t even surfaced yet.

    There’s all you need to know.

  4. A couple of points about this statement: “Last, there are the issues of whether Apple can attract new users to buy iPods and convince existing iPod owners to upgrade. It’s quite possible that many existing iPod owners won’t be willing to shell out yet another $400, again and again, for the latest model.”

    First, this is exactly why Apple hasn’t licensed Fairplay. You buy an iPod, you buy music from iTMS. When it comes time to replace your iPod, do you buy another one or do you buy a different brand of DMP? You buy another iPod, for one reason because you’ve loved the one you have, but perhaps more importantly, all the music you’ve purchased for it from iTMS would have to be converted to put on a different DMP. Even if you were unhappy with the iPod (yeah, right) it might be too much trouble to go through that.

    Second, regarding upgrading your iPod every time Apple introduces a new one, who does that? I have a 3G 20 gig iPod. I didn’t get the 4G, or the 5G. So far my iPod has worked great and eventually I’ll replace the battery, but I expect I’ll have it for another couple years at least.

  5. Oh yes people are upgrading iPods – if the new designs are irresistable they will fly of the shelves again and again. And more to the point, those 45% of buyers new to Mac are all becoming advocates for others to switch too.. so the snowballing effect is underway which will bring a record year, surprising even Apple execs imo.

  6. It’s also dropping (imho) because investors have always been extremely skittish with Apple. The years and years of doom and gloom have yet to fully wear off. Most people still see Apple as a one hit wonder with the iPod, and when the iPod sales drop, they expect the company to go back to being Apple circa 1998.

  7. nice, ndelc, I have a 2G iPod that kicks butt and don’t see myself replacing it for another 2-3 years (it’s actually old school now, and I kinda dig that). But good point about fairplay. Combine that with the best design in the business and Apple will have iPod revenue for a long time to come…

  8. Personally, I find the analyst’s honesty absolutely refreshing. Everyone who has made solid predictions about Apple’s stock the last few years has been badly embarrassed. Lomax is the first to come right out and say it: Apple has never followed analysts “rules”. They’ve been so good at confounding the naysayers and pundits that it’s useless to say what’s going to happen.

    And she’s right: they’re such a fascinating company, in the middle of, and sparking, an unfolding digital media revolution, that you can’t tear your eyes away. And since no one except Apple knows what Apple have or are planning, only an idiot would predict how their stock will perform. Lay off of her; Lomax called it perfectly.

  9. I’ve got a 1st gen (still works great, no battery replacement) and a 4th gen.
    No plans to upgrade this year unless there’s some great feature i can’t live without.
    I may get a Nano if my 1st gen craps out, or I might just get a nano anyway.

    Wow! 106mill, even if Apple get 60% that’s an Avg of 16 mill a qtr. Crazy!
    And if those new iPod sales lead to a conservative avg of 24 songs (2 cds) a year per ipod purchase, that would be, what, like 1,5 Billion songs in a rolling 12 Mos.

    (all numbers are speculative fantasy and no statistical thought was given, so pls don’t blast me)

  10. Ohh, thank motherf-cking GOD!!!!!!!!

    12:33pm EST, and that’s the FIRST “increase” I’ve seen in AAPL in a long time. Hey, it’s only .13, but let’s see how long it lasts.

  11. The article points out the problem of the average stock investor/player – they have no technical acumen to know why Apple has defied most stock analysts.

    I recently bought 50 additional shares of Apple (AAPL) as a long-term investment for one reason – at some point, in 1 to 3 years, Apple is going to license OSX for install on any box. When this happens, Apple stock is going to explode.

    Now is the time to get on board and hang on for a phenomenal ride!

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