10 Stocks for 2013: #2 Apple
Dave is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
We started our 10 Stock portfolio for 2013 yesterday at Fastball Financial with Intuitive Surgical (ISRG) and continue today with another familiar name to readers of Fastball Financial site, and anyone else who doesn't live under a rock: Apple (NASDAQ: AAPL). This company needs no introduction. However, as a stock, it certainly needs some perspective.
Apple's stock had an intriguing 2012. People forget that Apple actually started the year with a lot of investor skepticism about whether or not that can keep creating enough big products continuing their growth and dominance. The stock started the year near $400 amidst this skepticism. For all of its ups and downs, it finished the year at $532.17 for a 30.6% gain (including dividends). We had Apple in our list of 10 stocks for 2012 and bringing it back for 2013 seems like a no-brainer.
Apple has a P/E of 11.5, is loaded with cash (even if it’s offshore), and now provides a 2.1% dividend yield. You could go on-and-on about additional metrics for Apple that are amazing: profit margin, return-on-equity, free cash flow, etc., but what investors care about (similar to last year) is whether or not Apple can come up with something that will continue to fuel its growth and dominance.
Investors underestimated Apple going into 2012 and they seem to be doing so again going into 2013. We still haven't even had a chance to see what the impact of the iPad mini will be. Apple TV is rumored to be coming in 2013, but we've had those rumors for quite some time now. The iPad itself really hasn't been around all that long yet, so there could be much more to come from that. What's more, Apple holds a ton of patents that will provide some extra income in the future. The reality is that Apple could be dreaming up something that no one really knows yet will drive the company's growth. Could an improved Siri drive growth through an Apple TV interaction or perhaps search capabilities on a mobile phone? Could they become more of a foundry where they can drive further profits by producing their own components?
Essentially, the possibilities are endless for Apple, which is a great sign for an already dominant company. It seems crazy to write off Apple at this point. They have too many opportunities and relatively weak competition at this point. The Google (NASDAQ: GOOG) Android operating system is helping other cell phone makers compete with Apple by providing a common and powerful platform. However, its app development still lags behind Apple as the gold-standard. Google isn't a bad company or a bad investment per se, but they're dealing with a much more specific problem: how to monetize search on mobile technology. Google had dominated the internet search market for many years now, but the shift to internet usage on mobile devices makes generating revenue on internet search difficult.
Apple also gets competition from Microsoft (NASDAQ: MSFT) on cell phones and tablets, but that threat is extremely weak thus far. Microsoft hasn't come out with a phone or tablet that's shown any serious threat to Apple or any other company playing in that space. Microsoft still makes a ton of money on its operating system and Office products, and then there's everything else that they try to do to make money.
Probably the most serious threat to Apple is coming from Amazon (NASDAQ: AMZN). Their Kindle Fire is the most direct threat to the Apple iPad. They are taking market share from Apple by providing a quality product at a lower price. The quality isn't nearly at the level of the iPad, but it doesn't have to be to take some of its market share. Amazon has made the strategic decision to sell the Kindle Fire as a break-even product or perhaps even a loss leader to generate business in its other segments. Amazon will likely continue to build on the Kindle Fire's success, but that shouldn't provide a serious detriment to Apple because Apple is focused on producing products of high quality that are easy to use, even if they charge a bit more for those attributes.
In the end, Apple has plenty of people chasing it and trying to knock it down. However, with all of its current products, patents and potential innovations, Apple has almost endless possibilities. No one truly knows for sure where their growth will come from 3-5 years from now. But given their recent history and their current products success, I'm willing to bet that the skeptics are wrong on this one. The late-year sell-off has given us an opportunity to add this stock to our 10 Stock Portfolio for 2013.
If you're looking for another stable technology company that provides a steady dividend, then take a look at Accenture (NYSE: ACN). This company operates one of the largest technology, consulting, and outsourcing operations in the world. Investors know this company for its consistency, low-volatility and steady dividend (currently 2.4%). It has a P/E under 17, a 31% gross profit margin and a sky-high 56% Return-on-Equity (ROE).
Accenture was a contributor to our successful list of 5 Tech Stocks for 2012 at Fastball Financial. For our 3-month period in that portfolio, Accenture produced a 5.9% gain. Unfortunately, it was set to be the top gainer of our 5 stock group until it announced earnings last week. They reported a strong quarter, but it wasn't enough to keep the stock up at its $70 level.
Accenture certainly isn't the most sexy company to invest in, but it has given its investors terrific returns in recent history and a nice 2%+ dividend to carry them through any short-term dips. Accenture continues to be a good long-term story with great returns. It is a buy on any significant pull-back.
Technology stocks in general had an interesting year in 2012. They rode many tides up and down, but were held back mainly because of fears of slowdowns in both China and Europe. However, economies around the world generally seem to be recovering or at least stabilizing, with both companies and individual consumers ready to spend on technological advances produced by companies such as Apple. Many doubt that Apple can continue its recent growth rate, but those concerns seem to be baked into Apple's valuation. Apple even offers a 2%+ dividend while we wait to see how they do.
If you need more stability, there are plenty of tech stocks that offer less volatility and good dividends. My favorite is Accenture, the consulting company that has been a steady riser and provides a 2.4% dividend yield. Its historic returns have been excellent, especially relative to its low-risk profile.
Thanks for reading! I'll release stocks #3-10 in the 10 Stock Portfolio for 2013 over the next two weeks.
Zaegs owns shares of Apple. The Motley Fool owns shares of Apple, Amazon.com, Google, and Microsoft. Motley Fool newsletter services recommend Apple, Accenture Ltd., Amazon.com, Google, 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!