Apple (AAPL, Financial), the American multinational corporation designing and marketing computer software, consumer electronics and personal computers has recently suffered from a shortfall although it has exceeded its earnings expectations.
The shortfall, including a 7% drop in shares from all time highs seems to be driven by hesitancy and a delay in the launch of new products, especially its iPhone 4S. That was the main factor that caused a small miss from analyst expectations.
It is interesting to note that Apple is a Top Holding position in both value Gurus and growth-focused top funds. For example, Apple is a top position in Julian Robertson, David Einhorn, Steve Mandel, John Griffin and Lee Ainslie portfolios. Also, Fidelity Contrafund and Sands Growth Funds, two portfolios I follow to track what growth funds are doing, consider Apple a top conviction. I think that Apple offers the great combination of growth and attractive valuation. That is what attracts both value and growth managers.
In this article, I will not only describe what happened with the iPhone 4S, I will also mention the situation with the iPad and Mac. Plus I will mention what I think in terms of valuation.
To have a better understanding, it’s necessary to consider what happened in the last earnings report in detail. The initial launch for iPhone 4S was expected in June but it was later rescheduled for October. This change of date made consumers hesitate about the purchase of the device.
But what else happened? Due to the change of the launching date, Apple did not add any new carriers and countries until late September and thus, missed a strong start. But that delay has not affected consumer interest in Apple products. The evidence of 4 million unit sales during the first 3 days after the iPhone 4S appearance show that demand potential is huge, even that Apple did not offer a truly new iPhone. In other words, consumers rushed to buy the product. Peter Oppenheimer, chief financial officer and senior vice president expects demand to grow in the coming quarter and forecasts that 29 million devices will be shipped in December quarter. By year end, the iPhone 4S is expected to be available in 70 countries with over 100 carriers.
In terms of the iPhone segment, Apple is a leader in one of the most attractive secular trends in technology. According to Credit Suisse Analyst Kubinder Garcha, smartphones continue experiencing strong volume growth in 2011, with global shipments increasing 57% year over year. I think that Apple will continue gaining share in this secular growth market driven by the addition of new carriers, new phones innovation and continue seeing strong adoption in the corporate space. For example CFO Peter Oppenheimer commented as an example that Lowe's (LOW, Financial) is in the process of rolling out over 40,000 iPhone in the coming months. I expect the iPhone segment to keep its innovation and growth potential in the medium term.
Apple is also addressing a potential $120 billion tablet market (according to Credit Suisse research team) with its superb iPad product. Apple has been increasing both geographic and enterprise penetration, as it launched the device in new 28 countries in the last quarter and 92% of Fortune 500 are using or testing the iPad in enterprise. Apple expects to launch a new iPhone in 2012 and add new functionalities that I think will increase consumer demand from current high levels.
The Mac segment appears positioned for further growth. That growth will come from two layers. First, Asia Pacific strength continues in underpenetrated developing markets. In the current Apple 10-K, management mentioned that half of Macs sold in stores were to people who never owned a Mac previously. This is impressive considering that the vast majority of Apple stores are located within the US and that is where Apple's share is the highest. This should allow for growth in relatively less penetrated markets. I believe that the International opportunity should contribute relatively strong growth over time as Apple increases its retail presence and takes advantage of faster growing but less penetrated markets. Also the Mac segment benefits from the “Halo Effect,” which is the cross-selling of Apple products. As we can see in the chart, Mac market share grows as Apple introduces new products and tools.
Apple could also launch huge potential market products such as an Apple TV, video games, tools and streaming content services.
In terms of valuation, Apple is trading at multiples that are in the low end of its historical values and I think represent an attractive valuation. As we can see in the P/E historical chart, trading at a P/E of just 14.5 and well below how Apple traded in the past years, shows that shares are not expensive. That also happen with both P/B and P/S ratios. Considering the superb balance sheet and management, huge potential growth prospects with new products or markets and attractive valuation levels plus premium Guru sponsorship make Apple a top holding in any equity portfolio.
Also check out:
The shortfall, including a 7% drop in shares from all time highs seems to be driven by hesitancy and a delay in the launch of new products, especially its iPhone 4S. That was the main factor that caused a small miss from analyst expectations.
It is interesting to note that Apple is a Top Holding position in both value Gurus and growth-focused top funds. For example, Apple is a top position in Julian Robertson, David Einhorn, Steve Mandel, John Griffin and Lee Ainslie portfolios. Also, Fidelity Contrafund and Sands Growth Funds, two portfolios I follow to track what growth funds are doing, consider Apple a top conviction. I think that Apple offers the great combination of growth and attractive valuation. That is what attracts both value and growth managers.
In this article, I will not only describe what happened with the iPhone 4S, I will also mention the situation with the iPad and Mac. Plus I will mention what I think in terms of valuation.
To have a better understanding, it’s necessary to consider what happened in the last earnings report in detail. The initial launch for iPhone 4S was expected in June but it was later rescheduled for October. This change of date made consumers hesitate about the purchase of the device.
But what else happened? Due to the change of the launching date, Apple did not add any new carriers and countries until late September and thus, missed a strong start. But that delay has not affected consumer interest in Apple products. The evidence of 4 million unit sales during the first 3 days after the iPhone 4S appearance show that demand potential is huge, even that Apple did not offer a truly new iPhone. In other words, consumers rushed to buy the product. Peter Oppenheimer, chief financial officer and senior vice president expects demand to grow in the coming quarter and forecasts that 29 million devices will be shipped in December quarter. By year end, the iPhone 4S is expected to be available in 70 countries with over 100 carriers.
In terms of the iPhone segment, Apple is a leader in one of the most attractive secular trends in technology. According to Credit Suisse Analyst Kubinder Garcha, smartphones continue experiencing strong volume growth in 2011, with global shipments increasing 57% year over year. I think that Apple will continue gaining share in this secular growth market driven by the addition of new carriers, new phones innovation and continue seeing strong adoption in the corporate space. For example CFO Peter Oppenheimer commented as an example that Lowe's (LOW, Financial) is in the process of rolling out over 40,000 iPhone in the coming months. I expect the iPhone segment to keep its innovation and growth potential in the medium term.
Apple is also addressing a potential $120 billion tablet market (according to Credit Suisse research team) with its superb iPad product. Apple has been increasing both geographic and enterprise penetration, as it launched the device in new 28 countries in the last quarter and 92% of Fortune 500 are using or testing the iPad in enterprise. Apple expects to launch a new iPhone in 2012 and add new functionalities that I think will increase consumer demand from current high levels.
The Mac segment appears positioned for further growth. That growth will come from two layers. First, Asia Pacific strength continues in underpenetrated developing markets. In the current Apple 10-K, management mentioned that half of Macs sold in stores were to people who never owned a Mac previously. This is impressive considering that the vast majority of Apple stores are located within the US and that is where Apple's share is the highest. This should allow for growth in relatively less penetrated markets. I believe that the International opportunity should contribute relatively strong growth over time as Apple increases its retail presence and takes advantage of faster growing but less penetrated markets. Also the Mac segment benefits from the “Halo Effect,” which is the cross-selling of Apple products. As we can see in the chart, Mac market share grows as Apple introduces new products and tools.
Apple could also launch huge potential market products such as an Apple TV, video games, tools and streaming content services.
In terms of valuation, Apple is trading at multiples that are in the low end of its historical values and I think represent an attractive valuation. As we can see in the P/E historical chart, trading at a P/E of just 14.5 and well below how Apple traded in the past years, shows that shares are not expensive. That also happen with both P/B and P/S ratios. Considering the superb balance sheet and management, huge potential growth prospects with new products or markets and attractive valuation levels plus premium Guru sponsorship make Apple a top holding in any equity portfolio.
Also check out: 
