4 Reasons to Hold On to Apple For the Long Haul
Dr. Osman is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
I was expecting a pullback from Apple (NASDAQ: AAPL) when it hit $700. As I expected, the stock could not hold on to above $700 valuation and retreated. However, the technology titan is far away from losing its long-term momentum. Apple is facing some big competition from other companies like Samsung, Nokia (NYSE: NOK) and Research in Motion (NASDAQ: BBRY) in the smart phone arena, Dell (NASDAQ: DELL), and Sony (NYSE: SNE) in the laptop arena.
Both RIM and Nokia lost a substantial amount of money due to tough competition from Apple. At the beginning of 2008 both RIMM and Nokia had market caps above $100 billion. Apple had a market cap of about $150 billion back then. However, while Apple's stock was making it to new highs since the subprime crises, RIMM and Nokia kept sliding. Currently, RIMM and Nokia have combined market caps of about $15 billion which is a fraction of Apple's $600 billion market cap. Both RIMM and Nokia are going through though periods, and they already started burning cash from previous earnings. While both stocks are trading well below book value, there is a reason for this.
Apple's rise is inevitable. Before Apple introduced the 'i' concept, Sony used to have a strong brand image. As such its products were priced with a premium compared to others such as Dell. However, Apple became the new fashion icon. The introduction of iPod created a revolutionary movement in the music industry that is similar to the introduction of Walkman by Sony.
Samsung is even fighting tooth and nail with Apple in the tablet PC arena, as well. However, none of these companies seriously concern Apple over competition. The stock is trading as if it has no rivals at all. Listed below are the four reasons of why Apple still has significant upside potential.
Reason #1) iOS is superior to Android in many ways.
There have been enormous discussions on which has the best hardware: Samsung Galaxy or iPhone. Since I am an ex-Galaxy user and recently switched to iPhone, I can make it quite clear for everyone. Even the first Galaxy smart phone contains much better hardware than iPhone 4S. However, it is not the hardware that makes a smart phone simply "better." It is about how users make use of the hardware, and iPhone uses all of its capabilities at its best. iPhone offers a simple, intuitive and agile use, while Android is much more complicated and sometimes annoying.
Android runs lots of applications in the background, which easily sucks up battery life and slows the phone down. You can close them of course, but I don't think anyone actually enjoys tapping periodically more than ten applications to make them stop. On the other hand, the iOS runs only what you would like it to.
When I switched to iPhone, I realized that I was tired of clearing RAMs and waiting for one minute to get into Menu afterwards, as well as dealing with "Force Close" periodically. Moreover, icons and general layout doesn't look cheap like it does on Android. I don't understand people believing that iPhone restricts you, and you can do anything on Android, install ROMs etc. With iPhone, I feel much, much free than I felt in Android. Therefore, the iOS is superior to its biggest rival Android, which has a major effect on Apple's iPhone sales.
I also want to point out that Android comes with lots of phones under a couple of brands, and hardly rival against iPhone itself. Also, if the iOS were installed on Samsung Galaxy SIII, that would be the ultimate smartphone.
Reason #2) Apple Store is superior to Android Market in many ways.
Most of the Android users defend the idea that Apple Store mostly consists of paid applications while Android Market offers free ones, and that Android Market is expanding faster. However, most of the Android applications are only references to websites. I have installed many beautiful applications and games via apps-gone-free applications to my iPhone, which list paid applications gone free for a special event or day. Moreover, we shouldn't forget that application developers do this for a living. They work better where they earn better. There's hardly any good Android games/applications originally designed by an Android developer. All of the good stuff comes copied from the Apple Store. No wonder why games made by Android application developers remind of Commodore 64. Android Market still has a long, long way to catch up with Apple Store.
Reason #3) MacBook has a major market share in the laptop arena.
Apple didn't restrict itself only with iPhone; it opened a new era in the computer world, as well. MacBook is now a highly advantageous option for professional consumers. Among laptop producers, none has yet reached the success Mac did. Macbooks have a large fan base most of whom are willing to pay premium prices for the next generation laptops.
The upward trend in the macbook sales is obvious. Even though the cheapest Macbook air currently sells for $999. The price tag can go up to several thousands for Macbook pros. However, people still buy them. Again, I believe that the stability, speed and simplicity of iOS have a significant role in this matter.
Reason #4) Apple is the leader of tablet PC market
Apple is the leader of the tablet PC market break open. As the first iPad was released, lots of companies started producing tablet PCs. Unsurprisingly, none of them got anywhere near iPad. Again, Samsung has the second biggest share here.
As the iPad 3 is released soon, I expect it to be a profit booster for Apple. I have no doubt that Samsung makes better hardware than Apple. However, that hardware is wasted in Android's hands. On the other hand, Apple gives the best out of its hardware. Therefore, Samsung will not gain the upper hand as long as Android system is inferior to iOS.
Apple is clearly going for a trillion market cap within the next few years. Because of the reasons listed above, AAPL will rule the U.S. stock market for a very long time, parallel to the reign of its company in the tech world. Besides, it's still cheap for its name, especially when compared with Google (NASDAQ: GOOG). Google is trading at a trailing P/E ratio of 22, which is almost 50% higher than that of Apple. Even after returning 60% in this year alone, Apple looks still cheap as earnings keep rising faster than market price. There's almost nothing that can stop or seriously rival with Apple, currently. While, the stock is recently lost its short-term momentum, I strongly recommend holding on to Apple for the long haul.
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ecofinstat owns shares of Apple. The Motley Fool owns shares of Apple and Google and is short Sony (ADR) and has the following options: long JAN 2013 $22.00 calls on Sony (ADR). Motley Fool newsletter services recommend Apple, Dell, and Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.