Why I’m Taking Another Bite Out of Apple

Matthew is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Maybe you’ve heard the news that shares of Apple (NASDAQ: AAPL) have now fallen firmly into bear market territory as they’re down more than 20% from their recent high of over $700 a share.  If you’re an Apple shareholder it’s probably of cold comfort to you to have just been on the receiving end of another dividend.  While the $2.5 billion payout sounds like a large sum, when spread across their more than 900 million shares it amounts to a fairly small pittance to the average shareholder.   

For a myriad of reasons shares of Apple have been beaten down pretty badly over the past month.  Still over the past year shares are still up more than 35% and there is plenty of reason for investors to see the current selling pressure as a buying opportunity.  In fact, that’s exactly how I see it and it’s the reason why I’m adding to my Apple position in my virtual “No Drip, No Mess” Portfolio

First though, why the fall from grace?  Just two weeks ago the company gave an update on sales of their newest iPads which doubled the previous first weekend sales by selling three million units.  In the release CEO Tim Cook stated that, "Customers around the world love the new iPad mini and fourth generation iPad…We set a new launch weekend record and practically sold out of iPad minis. We're working hard to build more quickly to meet the incredible demand."  What appears to be bothering investors aren’t the heady first weekend results but the future of the franchise in light of increased competition in the space. 

That competition is coming from Microsoft’s (NASDAQ: MSFT) new surface tablet which just debuted in late October and Amazon’s (NASDAQ: AMZN) updated Kindle Fire.  The problem it would appear is with the price point.  An iPad with Retina display will set a consumer back $499 while the iPad 2 is just a hundred dollars cheaper; meanwhile, the new mini is priced at $329.  For cash strapped consumers the Kindle Fire HD is a real value and just $199 while the larger 8.9” version is $299.  For a family with a few kids that’s a big difference and one that is justifiably concerning the market.

Microsoft went toward the higher price point by pricing the Surface at $499 for just the tablet and $599 with the touch cover.  It remains to be seen how consumers will respond to this new tablet.   Still, it’s another entry into what’s becoming a crowded field.

The market would appear to be missing the fact that the tablet industry is still in its infancy while Apple’s other markets such as smart phones and PC’s still have decades left of refresh cycles.  Further, the company that’s revolutionized the mobile market is unlikely to be done with future innovations.  While Steve Jobs has passed on, the company’s employees are likely to have more innovations in the works whether they be in the living room via the long rumored Apple TV or in other market’s we’ve not yet considered.

That future of innovative potential combined with an inexpensive share price and more than a hundred billion dollars’ worth of cash in their bank accounts are more than enough reason to entice me to take another bite out of Apple.  With shares recently around $525 a share I’m effectively doubling my exposure to Apple with this third buy recommendation.  Specifically I’ll be buying another five shares for the portfolio which will bring my total allocation up to 5.75% for a slightly overweight position.  While I’m not calling the bottom in the shares, the valuation that we’re seeing thanks to the sell-off is just too compelling to pass up. 

latimerburned owns shares of Apple and has the following options: Apple and Microsoft. The Motley Fool owns shares of Apple, Amazon.com, and Microsoft. Motley Fool newsletter services recommend Apple, Amazon.com, and Microsoft. 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.

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