3 Reasons Why Apple is a Strong Buy
Muhammad is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Apple’s (NASDAQ: AAPL) stock has been a topic of prolonged discussion over the past few weeks. The ramble comes at the wake of its iPhone 5 launch earlier in September. At the heart of the discussion, analysts have been debating the probable effects of the iPhone 5 on Apple’s future.
While many analysts are jumping onto the iPhone 5 bandwagon, I am isolating my argument and looking at some of the broader aspects affecting Apple’s long term future. In doing this, I have identified 3 strong reasons why Apple is a definite buy.
1. Bulging cash reserves
Ever considered what Apple does with its healthy bottom line? Apparently, it has been saving huge chunks of profits in its own hedge fund for the past 6 years.
Surprised as you may be, Apple actually has its own hedge fund called Braeburn. Just to bring you up to speed, Braeburn is currently the world’s largest hedge fund. It boasts over $117 billion in funds and eclipses Bridgewater, the world’s former largest hedge fund.
How is this hedge fund mapped onto Apple’s long term future? Interestingly, it’s one of the core factors. Unlike other hedge funds, Braeburn does not offer investment counsel, instead, it carries out the sole function of being a money manager. Similarly, it also takes on various investment vehicles like bonds and stocks and uses the profit it makes to thicken Apple’s already swelling cash reserves.
The tech industry is volatile and dynamic. By my reasoning, Apple is one of the few players that sacrifice regular acquisitions in favor of long term opportunities and longevity. Braeburn is an ideal cushioning against whatever shortfalls affect the industry. For this reason, I believe that Apple will continue to be a domineering force in the long haul.
2. Significant inroads into enemy territory
I am also confident regarding the frenzied pace at which Apple is confronting the opposition. It is unafraid to try something new and always looks for the perfect time to do so.
A clear demonstration is the decision to start developing its own map service for its tablets and smartphones. This move sidelined bitter rival Google and set up a platform to stage future attacks against Google (NASDAQ: GOOG).
Despite the few glitches in Apple’s map service, it has promised to overhaul operations and enhance the performance of its app. This comes amid speculation over Google’s counter decision to develop a map service for iOS. As earlier noted, Apple has mastered the art of perfecting timing. If Google decides to launch a map service for the iOS, Apple’s overhauled map service will have probably attracted the attention of the market.
Moving over to the tablet market, Apple has managed to steal a lot of customers from rivaling tablet makers like Samsung. In doing so, it has also hit out at Google’s Android operating system. Although Samsung may be celebrating following the recent lifted ban on its tablet by California Judge Lucy Koh, the expected launch of the iPad mini before Christmas outweighs this. The iPad mini may launch just before the holidays and is expected to benefit from the growing fame of the iPhone 5.
3. Cool brand perception
At the moment, this is one of Apple’s biggest strengths. Alternate reports and many industry analysts have reason to believe that Apple’s devices sell because of their imposed ‘coolness.’
On the face of it, it makes sense. Technological superiority doesn’t matter to most consumers. For instance, Nokia’s (NYSE: NOK) Lumia 920 has been considered by many industry specialists to be technologically superior when compared with the iPhone 5. However, it can’t match up to the iPhone 5’s popularity.
Through its marketing techniques, Apple has over the years managed to add the touch of ‘coolness’ to its products, prompting a huge section of consumers to opt for its products. This perhaps explains the increased sales that each of its handsets records at the wake of a product launch.
The following graph offers a clearer illustration:
From the graph, it is clearly evident that Apple’s handsets lean on the cool brand perception. Each of its product launches are characterized by increased sales, suggesting that the cool brand perception factor prompts consumers to own the products.
For these three reasons, I am confident that Apple’s long term future offers hope. Its products are selling, its bottom line impresses and its stock is embarked on a bullish stretch. It is a strong buy.
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muhammadbazil owns shares of Google. The Motley Fool owns shares of Apple and Google. Motley Fool newsletter services recommend Apple 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.