19 July, 2007

Apple's Computers: Still A Growth Story

A report came out from market research firm IDC giving numbers and growth rates from PC's shipped. Link is here to AppleInsider http://www.appleinsider.com/articles/07/07/18/apples_u_s_mac_market_share_rises_to_5_6_percent_in_q2.html

The numbers show once again at how Apple (AAPL) is growing its market share in the US computer industry. In 2005 it was reported to have 4.4%, in 2006 4.8% and in 2007 5.6%. That's a lot of Macs in homes that have never had Macs before. The so-called "switcher". Steve Jobs frequently talks about Apple Retail Store foot traffic and how about half of Mac buyers are first time Apple computer buyers. This trend clearly shows just how true this statement is.
This rising trend emulates exactly how Apple's grown to become the third biggest music retailer in the US.

Call it the halo-effect from the iPod, the publicity surrounding the company lately with it's other products like iPhone or AppleTV, but one thing's for sure. Apple has its businesses clicking like never before, and its earnings numbers are expected next week. With the stock crashing through an all-time high of $140 this morning on these news you might think there's a sell the rumour buy the news opportunity prior to the quarterly earnings announcement. I wouldn't be so quick to jump on that side of the fence, while expectations for performance have never been higher for the company, they do have a juggernaut waiting in the hangar that hasn't had any official sales numbers released yet. This of course being the iPhone. While sales numbers for Macs and iPods are expected to beat consensus estimates, and handily at that, what the stock really needs to keep its upwards momentum is a clear indication that iPhones are flying off the shelves.

So what's the strategy going into earnings? I think like all growth orientated stocks you have to know what you're getting into and what the prospects are. If you're an iPhone believer and this it's truly the next big thing then get in now before the next run in Apple's stock really takes shape. A quick look at the Option interest for January 2008 shows some very optimistic investors as almost 50,000 call contracts are open for a strike price of 200. And as of today these options go for $3.60 a contract. A lot of money is being bet on the continued rise of Apple shares. So is it safer to go with the bullish herd or go against the grain and swim upstream on the bearish side of the stock? I for one believe a company as innovative as Apple, currently in the business growth cycle it finds itself in is a hard bet to pass on, so I've put away my Muleta for now and let the bull run.

Disclosure: Author is long AAPL


Adam said...

I feel the same way about Apple. In fact I am going to hope look for an entry point today or tomorrow (keeping in mind that my pool of capital is laughably small). I really just want to maintain a small account to see if I can have a decent return despite my inexperience.

I asked on the cour four blog too but do you have any thoughts on AKAM. I've just begun reading up on the company and it seems good.

Anonymous said...

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Chris Krasowski said...

Akamai is a great company doing some very powerful things on the internet. They may not get very much press but investors fell in love with the company over the past year and a half because they are the backbone of a growing broadband internet. Any powerful web portal uses their technology to make their sites run quicker and content get to the end user faster.

However, this is a high growth company and therefore sports a very high P/E which is probably overextended. However the company is $10 off from their 52-week high, but I don't believe this is a buying opportunity yet. While it's tought to judge this companies valuation a P/E of 131 is very high, no matter what the growth. Considering you are just beginning Adam, I wouldn't recommend getting in at these levels. Apple is much more established and has a clearer vision of growth that you could determine yourself and try to do some basic investing calculations on.

Good luck