I've taken the plunge with Apple Inc. (NASDAQ:AAPL). Should you?
Having made Apple (NASDAQ: AAPL.US) one of my tips of the year, and bought some shares for my personal portfolio, I thought I'd write a more detailed article explaining my choice...
I was talking to a friend during a Christmas get-together. I told him that I had recently bought shares in Apple, and that I thought it was a good investment.
No, he said to me, he thought that the boys from Cupertino were past it. Mentioning the Google Maps fiasco, he said that Apple just wasn't the trail-blazing company it used to be. He felt that companies like Samsung and Google were now more innovative.
Read the news about Apple and all you hear is doom and gloom: "Is the mighty Apple corporation floundering?" "Another crack in the mighty Apple brand". Yet in the summer of 2012, people were constantly singing out the company's praises. How could so much change in just a few months? Is this technology titan really on the path to oblivion? Let's dig deeper...
A booming phone and tablet market
The latest figures show that the iPhone 5 grabbed 53% of the US smartphone market. The market share in other markets is less, but market research company IDC has predicted that Apple's global market share in smartphones will actually increase from 2012 to 2016.
And remember this is a market which, as a whole, is growing as more and more people trade up their mobiles for smartphones. With Apple's hefty margins, it is making truckloads of money on smartphones.
What about tablets? According to IDC, Apple's market share in tablets will fall from 53% in 2012 to 49% in 2016. Sounds disappointing? Well, not when I tell you that the tablet market is predicted to expand from 122 million in 2012 to 282 million in 2016, so Apple's tablet sales will actually increase from 65 million to 140 million.
Wait till emerging markets take off
Then there is China. The latest iPhone has been registering record sales in China. Yet the iPhone isn't even sold by China's largest carrier, China Mobile. But Apple is expected to reach a deal with China Mobile in 2013. And at the moment, hardly any iPhones are sold in India...
The reason why iPhone sales in emerging markets have, up to now, lagged those in developed markets is the lack of high-speed mobile networks. As this infrastructure is built then the smartphone market in these countries will take off.
With all these factors, even if there is a slight erosion of margins, profits are still likely to rise.
What about volatility?
But given the volatility of tech shares, is Apple really a good long-term investment? Well technology definitely can change quickly, and I certainly don't think I will be holding these shares in 20 years' time.
But I do think we are in the midst of a long-term trend away from computers and laptops and towards smartphones and tablets, which will be to the benefit of companies like Apple and ARM. At some point Apple's profits will peak, but I don't think we have reached that point yet.
So, to finish: Apple's share price has slumped by nearly a third in the past few months, and the company is now on a forward price-to-earnings ratio of just 9. Plus I haven't even mentioned its $125 billion cash mountain. The company is now firmly in bargain territory.
I never thought I'd say this, but -- from being the go-go share of the moment -- Apple is now a contrarian buy.
By digging down deeper into a company's accounts and track record, you can learn so much about its future prospects. Seeing beyond sentiment and current opinion, Warren Buffett had the ability to focus on the fundamentals of a company, and by doing so he could unearth unloved shares which would make him a mint.
So when he invests in a company on this side of the Atlantic, people take serious note. Read our free report on 'The One UK Share That Warren Buffett Loves'.
> Prabhat owns shares in Apple, but in no other company mentioned in this article. The Motley Fool owns shares in Google.
