first quarter 2015

Should you go AAPL Picking?

Chances are, you are reading this post on an Apple product. It could be a smartphone, a tablet, a computer… in 2015 it could even be your watch! But we’re not wondering whether you have an Apple in your device collection. We’re wondering, should you have AAPL in your portfolio?

Well, if you could travel back in time, the answer would be a resounding YES. This chart from Yahoo Finance shows AAPL’s stock movement since September 9th, 2014. As you can see, Apple has steadily outperformed the Nasdaq composite (shown here in pink) during that time.

September 9th was of particular importance to both Apple super-fans and AAPL owners, because it marked the launch of the iPhone 6 as well as the announcement of Apple’s first genuinely new product in several years: the Apple Watch.  While there was only moderate movement in the stock after the new product announcement, the price started to really take off in late October.  Why?

Excellent quarterly results never hurt. Apple reported their 4th fiscal quarterly results on October 20, 2014, exceeding Wall Street’s expectations on both revenue and profitability. It was on the back of those strong earnings that Apple really started outperforming the market.

apple stock price

As an investor, the question you’re asking is, “will AAPL stock keep going up?” Is this just the beginning of a great year for Apple, or is it time to cash in your stock and take some profits? To take a deeper dive into just what is driving their upward stock movement, let’s look more closely at some of Apple’s latest offerings.

iPhone 6 and 6+

During this quarter, you could say that Apple is living in the house that the iPhone built. After introducing the new iPhone 6 and 6+, they sold a cool 10 million of those puppies in the first weekend they were available. (Yes, that was a record for iPhone sales.) Sales greatly exceeded Wall Street’s expectations, but many of you probably already know that, because you spent hours waiting in line to pick yours up.

What makes the iPhone 6 and 6+ so desirable? First of all, it appears that size matters. As more and more people use their smartphones for consuming video content, “bigger is better” when it comes to screen size. Apple delivered on this by offering the iPhone 6 with a larger 4.7 inch display, and the 6+ with a whopping 5.5 inch display. The new iPhones also include a better camera and improved Wi-Fi capabilities. What’s not to like?

*During the iPhone 6 unveiling, Apple also took the opportunity to deliver the new U2 album to everyone’s…yes everyone’s… icloud account. The 500 million consumers who received the free album were either very happy or very upset about the transaction. I guess it depends on how much you like Bono. Either way, we know Tim Cook is a fan!

apple u2

iPad

Of course, not all of Apple’s product lines are seeing a boon in sales. The iPad has seen sales slow this quarter; the 12.3 million units sold in Apple’s fiscal Q4 was 7% worse than last quarter. This has investors worried because the overall tablet market is in decline. Add in some steep competition from Microsoft and Samsung (yes those are Microsoft Surfaces that you’re seeing on NFL sidelines) and you may have a recipe for decline.

For Apple’s part, they are continuing to innovate in the tablet space. (It is a space that they invented after all.) In 2014, they are hoping that a wider array of iPad sizes will help bring consumers back, with perhaps an even bigger iPad screen due out next year.

Mac

Yes, despite the growing capabilities of tablets and screen sizes of phones, it appears there is still a market for real computers. The Mac had a great quarter for Apple, with 5.5 million units sold, 21% greater than 2013.

And the wins for the Mac might just keep on coming. In October Apple announced the new 5K iMac, with what Apple’s chief marketing executive calls “the world’s highest-resolution display.” At 14.7 million pixels, the new iMac’s screen has four times as many pixels as a standard Mac. Aimed both at professionals and as a premium home computer, it is Apple’s hope that the new iMac will help restore what has been a declining market for desktop computers.

Apple Watch

apple watch

The Apple Watch is Tim Cook’s most innovative new product since taking over as Apple CEO, and boy was he excited. For good reason too, because the watch sports some pretty great features. It is compatible to your other Apple devices, so you’ll be able to call, text, and email from your watch. You can also use it to track fitness (similar to some other wearable devices on the market, such as the FitBit) and run other third-party apps. If you are a romantic, you can even use the watch to send your heartbeat to a loved one. And of course, to satisfy fans of spy movies everywhere… the watch can also act as a walkie-talkie.

The Apple Watch doesn’t hit the market until early 2015, but some bullish investors are using its announcement as a reason to buy AAPL stock now. Others are taking a conservative approach, and waiting to see if the new product proves itself before making an investment.

Apple Pay

Apple’s other new product isn’t actually a product at all, but a service called Apple Pay. Apple Pay is a digital wallet and payment service – a way to pay using only your iPhone or Apple device. Credit and Debit cards are stored in your “Passbook” app during setup. Then, thanks to a “Near Field Communication antenna,” you can pay in stores by simply holding out your iPhone, which will connect wirelessly to the register and log your payment. Paying online is even simpler; all you’ll have to do is click this button:

apple add to cart

Already accepted by a slew of credit cards, banks, apps, and retail stores (click here for a full list) Apple Pay is truly trying to become your payment method of the future.

Unsurprisingly, there have been privacy concerns, but Apple argues that this digital payment method is in some ways safer than traditionally handing over a credit card. After all, your credit card number stays hidden and protected in your phone; you never have to reveal it to anyone. And transaction information is protected too. As described on Apple’s site,

“These numbers are never stored on Apple servers. And when you make a purchase, the Device Account Number, along with a transaction-specific dynamic security code, is used to process your payment. So your actual credit or debit card numbers are never shared by Apple with merchants or transmitted with payment.”

It’s fairly early to make broad statements about adoption of the service, especially because people will need to buy Apple’s most up to date hardware in order to enroll, but the preliminary signs are quite good. Over a million users signed up for Apple Pay in the first 72 hours, and the New York Times reports that after just three weeks, retailers such as Whole Foods and McDonald’s are already seeing strong growth in Apple Pay usage.

So… should you buy AAPL stock?

The Bears Say No

  • In all of its products, Apple is facing intense competition. Samsung is coming on especially strong in the cell phone market, where it already sells more phones worldwide than Apple. Will the iPhone 6 sales be enough to change this trajectory?
  • With iPad sales declining, there is concern that Apple’s phones are actually cannibalizing their tablets. If smartphone screens get much larger, do consumers have a need for a tablet-sized device anymore?
  • While impressive, Apple Watch and Apple Pay are unproven. Whether or not they succeed will be worth waiting to see. Especially with some high profile security breaches in the cloud recently, will consumers really be willing to link their apple accounts to their bank accounts or credit cards? It remains to be seen.

The Bulls Say Yes!

  • The iPhone still incredibly successful, and demand for the iPhone 6 is off the charts. Tim Cook declared on the Earnings Call, “we are selling everything we can make!” which indicates that sales could be strong for a sustained period of time.
  • Apple Watch and Apple Pay could be indicators of the company’s foray into the IoT, or the “Internet of Things.” The IoT is a hugely expanding market in which all of our future home appliances and devices are connected via the web. If Apple and its operating system, iOS, can tap into that market successfully it could mean large gains down the road.
  • The company has a strong history of innovation, not only in inventing new product categories but also executing incredibly well. As such, there is no reason to believe that Apple would stop being a market leader. The stock has been outperforming the market for almost ten years…why would it stop now?

What about you? Are you an Apple-believer, or are you watching this product cycle from the sidelines. Let us know in the comments.

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