Picking Winning Stocks is Like Shooting Apples with William Tell!
Are Apple Stocks a Safe Shot?
There are many interesting lessons to be learned from investing in tech companies. For example, if you were one of the early investors in Apple (AAPL, Financial) back in 2001 prior to the launch of the iPod, you would have made back over 9,000% profit in the 14 years since. In much the same fashion you would have been up over 900% had you bought Apple shares prior to the release of the iPhone in 2007. These statistics are mind-bending, and they illustrate precisely why Apple is the world's most profitable publicly traded technology company. Consider for a moment that at the beginning of the bull market in 2006, Apple was valued at a fraction over $94 billion. By 2015, the company is valued at over $728 billion.
High company valuations and high stock prices are not always viewed positively by investors, however. There has long been debate about whether it is wise to invest when the stock price is high, and how much further the price can rise given the fundamentals of the company. Once again, Apple is stirring interest with investors around the world. There are those who believe that the launch of the Apple Watch will net them a fortune, but the jury is still out on this subject. The typical action/reaction pattern following similar launches in the past has worked well, but the global technology landscape has changed a great deal since then. Consider for a moment that prior to the iPhone, iPad, and iPod Touch craze Apple had a much more limited range of products on offer.
Apple engineers and designers have been burning the candle at both ends to try and create a highly functional, technological iWatch that is also a high-end jewellery item. The Apple Watches are certainly not cheap, with some versions retailing at over $17,000, but most are in the $350 range. The more expensive watches are made from precious metals, but the functionality of the watches is basically the same. This means that Apple is attempting to corner multiple markets with its smart watch, touchscreen technology. The battery has a purported life of 18 hours before needing to be recharged, but that depends on how much you're using the watch. Among others, the watch can monitor heartbeats, provide navigation suggestions, organise your iPhoto library, provides a host of messaging features and more. It is unlikely to resonate with users as a must-have item in quite the same way as the iPhone or the iPad did. However, it is a luxury tech timepiece that will certainly find its mark with a large number of devoted Apple users.
Apple Watch Revenues a Drop in the Bucket
Now that Apple has evolved into a technology giant with multiple product lines and offerings, the launch of a new product such as the Apple Watch will have less of an impact on the overall productivity of the company. Make no mistake, the new device will appeal to buyers around the world, and analysts expect that Apple will sell 17.6 million of these items at a retail price of $350. In terms of revenue, Apple can expect to pile on an additional $6.1 billion during the course of 2015. Naturally, these increased revenues bode well for the stock price of Apple. This $6 billion figure is massive by anyone's admission, but sadly it is a drop in the bucket when compared to the overall revenues generated in a 12 month period by Apple. Consider that during 2014, Apple's revenues closed in on $200 billion.
Apple is primarily associated with its revolutionary iPhone range of products. In fact, the iPhone is responsible for the vast majority of all revenues generated by Apple. Other products such as the iPad, iPod Touch, Apple TV and the recently released Apple Watch have nowhere near the revenue generation potential of the iPhone. This is evidenced by the fact that the iPhone 6 and the iPhone 6 Plus generated plenty of excitement for Apple; something that has desperately been lacking in recent years. It should be pointed out that the release of the 4.7 inch iPhone 6 as well as the 5.5 inch iPhone 6 Plus version was hampered by the glaring lack of supply, not the lack of demand. Recall that 10 million units were sold in the first weekend alone when the iPhones were released back in September 2014.
Crunching the Numbers – Yields, Returns and Dividends
By the end of 2014 some 115 countries received the new iPhones, allowing for massive revenue generation for these highly advanced tech marvels. Apple stock spiked and remains high on the back of strong quarterly earnings reports for Q4 2014, and expectations of solid earnings in Q1 2015. Then there's the issue of stock valuation. Banc De Binary analysts point out that Apple may be trading marginally higher than its value price, which should be in the ballpark region of $110-$115. The current valuation of Apple with its P/E earnings is 17.2 and that of the S&P 500 is 19.5. Even with the price/sales ratio, Apple is listed at 3.8 and near S&P 500 is listed at 1.8. Apple’s dividend yield is 1.5% while the S&P 500 dividend yield is 2.2%. Apple's valuation was significantly higher than that of the S&P 500 index from 2005 until 2010. Thereafter, the S&P 500 index reflected a higher valuation than Apple. In terms of yields, Apple has an earnings yield of 5.8%, a dividend yield of 1.5%, and a cash return yield of 8%.
