The Apple (NasdaqGS: AAPL) haters are now as zealot as Apple lovers, and it is the haters who are rejoicing as the stock has retreated over the past three months faster than the overall market and its sector as measured by the S&P 500 index and S&P Information Technology sector represented by its tracking ETF XLK and in my case, I add in the S&P Consumer Discretionary index represented by its tracking ETF XLY. I allocate 60:40; consumer: info tech for Apple.
But Apple detractors beware as the charts have turned on a one month basis and news from AAPL is nearly all good. Apple for a huge price tag is now selling unlocked iPhones in the US. This isn’t news elsewhere as frequent travelers outside the US who like to switch to local carriers have been benefiting from unlocked phones for a while.
Some facts I believe worth sharing that came out of its Worldwide Developers Conference are concerning iCloud and Apps, both huge topics. This may not seem earth shattering but there are some way-cool features roaring out of the Lion (iOS X). One aimed at that old phone manufacturer Research In Motion (NasdaqGS: RIMM) is its BBM-like iMessage, a feature enabling users to send free text messages, photos and videos between all iOS devices. Taken from my friends at Fierce:
Apple’s new free iCloud solution replaces the company’s premium MobileMe and automatically syncs content on Apple servers for access across iOS devices as well as Macs and PCs. iCloud Backup backs up all of the user’s iOS devices over Wi-Fi, storing content including purchased music, apps and books as well as photos, videos, device settings and app data. In addition, Apple’s App Store and iBookstore now download purchased iOS apps and books to all authorized devices, not just the unit on which they were purchased.
This is huge solution for people who own multiple devices and want to move from desktop to tablet to phone or iTouch as they need and not worry about breaking the law or something not working. This is another achievement made easier (I’m ready for your worst comments) due to iOS security and processes.
Naysayers had best look at the numbers. Yes the fragmented free OS from Google (NasdaqGS: GOOG) has more units sold units overall, but iPhone holds the highest brand loyalty and iPad remains a device virtually unchallenged. I read on Apple Insider that a survey taken at the Apple developers conference found that 47% of iOS developers support Android, 7% write for Mac. This is bad news for the Mac but also not surprising. Desktops and laptops are a different animal for computing than tablets and smart phones. The real loser here is all the makers of hardware seeking penetration using the Droid OS. Less than half the developers work duel platform. Less Apps is not a good thing.
The issue is, since there are so many varieties of Droid, support and Apps running as intended are at issue. Also, malware is no longer unusual http://www.pcmag.com/article2/0,2817,2386813,00.asp. Apple needs a real focused competitor to avoid antitrust issues. The contender needs its own OS and hardware. Perhaps the combination of Windows, Blackberry and Droid are enough along with all the handset makers and entrants into the tablet market are enough to keep the Feds away. Or is Apple laughing all the way to the bank and customer satisfaction with its one solution:hardware and software designed just for it, and Apps that must meet its criteria and processes.
With year over year revenue growth over 82%, older phones still selling well albeit at discounted prices, iPad almost not challenged and Mac sales increasing, the shorts and the small position size people may be in for a big disappointment come earnings. Oh iPhone 5 is not coming on schedule… look at sales figures for 4 and older. Yes, some margin compression is inevitable and has already occurred even with all of its software sales (also setting records), but the top and bottom line when earnings are reported may ultimately be major beats. At $326.75 and a forward PEG of only 0.62, $400 a share, it’s only a matter of when.
Disclosure: Corn is Chief Investment Officer of E5A Funds LLC. Through various equity strategies under his supervision, he is currently long AAPL.
