As we embark on a new school year, with campuses and classrooms filled with students accessorized with the latest MacBooks, iPods, and iPhones, it is a good time to conduct our own case study and look back at the remarkable run enjoyed the last 12 months by Apple, the iconic creator of these consumer-electronics brands, and where the stock is headed next.
At this time a year ago, Apple shareholders were becoming increasingly impatient with a stock that declined over 24% in the first half of 2013, compared to a market that rallied more than 13% over the same six-month period. Pundits acknowledged the company’s fortress-like balance sheet and cash position, but then wondered just what the company was planning to do with all that money.
Admirers of the late legendary co-founder Steve Jobs were often unimpressed with the strategic moves of CEO Tim Cook and the new management team, pointing to the uninspiring new-product pipeline as a sign that the company might never be the same without a visionary like Jobs at the top. Apple, the consummate “growth stock,” was clearly not growing as fast as it once did, leading many to talk about Apple shares as a good blue-chip “value” opportunity.
A year later, the stock has rallied to fresh all-time highs, which we believe vindicates patient shareholders and reflects the fact that Apple, 12 months ago, was indeed a good value. A 7-for-1 stock split earlier this year certainly proved to be well timed, as the subsequent hype for the upgraded iPhone 6 has certainly given the company the strongest publicity in years, pushing the share price to its current level. At the same time, most of the issues discussed a year ago when the stock was languishing are still a factor. Recent (past year) growth numbers remain less impressive than the results at two other bellwether tech companies, Google and Microsoft.
One of the reasons Apple’s sales growth has decreased so significantly is the slowdown of iPad sales. …
…Another reason for Apple’s slow growth rate recently is its lack of new product launches. …
…However, a closer look at the numbers reveals something interesting: the company’s R&D spending has risen over 30% year-over-year and could hit close to $1.6 billion in 2014. If management is allocating that type of spending to R&D, there must be much more in the works at the Cupertino, Calif., headquarters than simply adding an inch or two to the iPhone screen. With about four years since the release of the first iPad, many are suggesting that Apple may be onto something bigger than the usual product upgrade.
The question on everyone’s mind: Is it time to take some near-term profits and reduce my position in Apple? Do I hold at current levels and place my faith in the management team and the latest round of new products? Do I buy more shares and take advantage of the momentum?...