Overview:

Few companies in our history dominate an industry like Apple.  No company has ever created an eco-system the likes of Apple.  This is one reason it is the largest holding in my portfolio.  The new products continue to secure this eco system for years to come.  As Jim Cramer says over and over, this is not a stock you trade, it is a stock you own!

New Products:

The iPhones look to meet the market’s expectation.  Larger screen, facial recognition and a price that will continue to keep the cash profits rolling in.  The phone is the heart of the Apple eco system, and a discretionary spending item, that has become well, simply non-discretionary.

Twelve years ago I bought my ex-wife a Cannon Digital camera for $900.  It was a blazing 4 or 6 Mega Pixel, and at that time was at the higher end of cameras.  Who would have thought 10 years later your phone would have a 12 Mega Pixel camera let alone two.

We all expected a bigger better camera, but that is not where the future growth is.  There are two items that stood out during the products release and one that will add continued growth for years to come.  The first one is the Apple Watch.

Apple Watch:

I own an apple watch and love it.  Walking through the store I feel like Spock from Star Trek.  The key to wearable’s is not just being part of the future, but creating a product that improve life. 

The new Apple Watch is equipped with an EKG and AFib (atrial fibrillation) monitors.  Heart has an irregular beat or increased rate, the watch can warn someone allowing additional time to seek treatment. 

In addition the watch is equipped with an accelerometer and gyroscope which can notify emergency services in the event one falls, like our aging grandparents.  The catch here is you can use the watch to speak to 911 or call your niece for help.

I believe this is only the beginning, eventually they will add additional health devices such as monitoring for diabetes and other conditions.  This is a huge area of growth, preventive healthcare. 

HomePod:

Kids take note, you bought me the Amazon Echo for Christmas, it is still in the box.  This year buy me something I want, the HomePod!

I remember in a Tim Cook interview where he was asked about competing with Amazon’s Echo.  His response was the future is not with something that sits on your kitchen counter at home, but in your phone which you have on you at all times. 

You can not tell your Echo to order a Pizza on the way home from work, and if you are at home you probably have your phone on you.  Why have something spying on you that you do not need to? 

As someone that grew up in the 70’s & 80’s, music was everything.  Gone are the days of HiFi stereo systems with cassette and turntables, the future is the HomePod.

Apple boasts the best quality speaker on the market for home pods.  I read an article earlier this year that was titled “It only Sounds Great”.   Well what else do you need a speaker for?

Home Automation:

This is where the eco system comes together and where Apple’s cash hoard can be of use.  Control4 may not be an everyday word in your household, but in our business it is arguably the top automation company out there.  We see it specified for higher end new large homes and condos consistently. 

From transparent large screen TV’s, HiFi sound and video systems, motorized blinds, to lighting.  Control4 is the name brand that controls them.  The company has a mere market cap of just under one billion.  Control4 is a likely target for Apple and would add nicely to their eco system.

I could go on and on from smart lighting where your watch recognizes where you are and turns on the lighting, to controlling your appliances, individual room temperature, and smart ordering.

The future is upon us and Apple is already embedded into our daily lives.  Add to this a growing services business and it is no wonder Warren Buffet wished he could own the entire company.

Apple Chart:

Since the $92 low in 2016 Apple has defied all the naysayers that do not understand the power of branding and or and ecosystem.  Sure Apple only has 40% or so of the cell phone market, but they make nearly 90% of the profits in the space.  This is the power of a branding and eco system that is second to none.

Long term we have a target of 290, but this is not an area to sell all your apples.  With a company like Apple we look to buy pullbacks over time and cost average in.  For those with larger accounts selling Puts is an great way to reduce the cost of shares and acquire stock.

Now that the hype is over, the buy the rumor, sell the news, should bring Apple down to the 203 level.  Anywhere around this level is where I personally will be adding to my current position.  I’m already overweight, but you can not own enough of a good company. .

We will see the typical Apple bashers posting “nothing ground breaking”, but Apple has never been ground breaking.  They copied the GUI system from Xerox, the cellphone was nothing new, the first watch was Fitbit, and Echo was the first home pod. 

What Apple does do best is being the best.  They created a name brand recognized world wide, and has built up a cult like following.  This will continue in growth of their services division and I would not be surprised to see a future partnership with Disney and a few Acquisitions like Control4.

Summary:

Apple is a slow moving beast, and today most investors are inpatient.  Though their dividend is not that of what we consider a value company, their continued share buybacks is just as good if not better.

This is arguable but from alternate standpoints, but what is the difference if I reinvest the dividend, or the company buys back shares instead?  Taxes!  I do not pay taxes on share buy backs, but get the same benefit.

There is never a bad time to own a good company.  The next couple weeks there will likely be better buying opportunities ahead.  This is a perfect buy a little every month stock.  I could go on for pages but to keep it short I focused on only a few points from the release.

2 Responses
  1. tbingham

    I don’t disagree with any of the points of this article from a financial investment standpoint. Though, I long for the day that individuals of the world learn to think for themselves and reject the notion from the big tech companies that we need a device to monitor and be an integral part of our lives 24/7; from heart monitoring, to raising the blinds in our homes. It is just too much. Maybe our hearts would be in better ‘shape’, and wouldn’t need to be monitored 24/7 if we got off our butts and raised or lowered our own window blinds!

    The part of this story that lingers in the background is the fact that all this data is inevitably fed back to major data centers that are utilized by the latest AI to utilize the data for ‘someones’ benefit. For these reasons I elect not to invest in these companies. I have no doubt that one day, many years from now our kids will look back and say, ‘how did we get here’?

  2. Andrew Gonci

    I love your quote “Maybe our hearts would be in better ‘shape’, and wouldn’t need to be monitored 24/7 if we got off our butts and raised or lowered our own window blinds!”

    Couldn’t be more true!

    I do not disagree with you on the privacy issues. With facial recognition and cloud based AI eventually the government will know where you are at any time. This is already being implemented in China.

    As technology increases privacy decreases. Unfortunately this is the cost of what most consider progress. Spotify has taken it to the next level and others are soon to follow. There will be a point where the public says enough is enough, we are just not at that point yet.

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