Daily Gains Letter

Apple: Still a Stock Market All-Star?

By for Daily Gains Letter |

Apple a Stock Market All StarI no longer own an “iPhone” and I don’t have plans anytime soon to order the “Watch,” a smartwatch from Apple Inc. (NASDAQ/AAPL). Yet despite my personal needs, I do think Apple is the king of the mountain in the stock market’s technology space.

Some are suggesting the iPhone will eventually meet its match, but I have yet to see this. Apple sold something like 74.5 million iPhones in its first quarter. This a huge number, and it could get even better if existing users of older iPhones decide to stay. I didn’t; I switched to the “Samsung Galaxy,” which I feel is a comparable alternative to the iPhone. But this is not about my personal taste.

The reality is that Apple has quickly become the Darth Vader of the stock market’s mobile space, ruling over the galaxy of smartphones. There will be challengers like Samsung and China upstart Xiaomi, which makes a similar phone that’s cheaper than the iPhone. Yet, in Xiaomi’s own backyard of China, it’s the iPhone that is running rampant and quickly becoming the mobile phone of choice within this massive market with over one billion users.

In the first quarter, Apple saw its revenues from greater China surge 71% year-over-year; this includes Hong Kong, Macau, and Taiwan. Clearly, the company’s alliance with China Mobile Limited (NYSE/CHL) was a key factor in driving up iPhone sales. The region generated about 30% of Apple’s first-quarter revenues second to the United States.

It’s impressive that Apple has been able to maintain its gross margin at 40.8% in the first quarter; obviously buyers are still willing to pay the higher price for the iPhone.

Moreover, we still have the contribution of Apple’s Watch that, based on preliminary estimates, is selling big, with customers willing to deal with a waiting period to receive the watch. Again, I don’t care much about the smartwatch, but there are obviously millions who disagree. Apple took a little hit in the stock market last week after saying that a glitch with a component in the Watch will mean delays in shipments as the component is replaced with one from another supplier.

The stock market hasn’t fully discounted in Apple’s smartwatch, so I look at any weakness in the stock as a possible investment opportunity.

We still have the company’s alliance with International Business Machines Corporation (NYSE/IBM) in developing new applications, which should ultimately reward Apple on the stock market.

Apple is also using some of its massive cash base to buy back shares and increase its payout to shareholders, with about $200 billion earmarked for this. I’m sure shareholder Carl Icahn will be pleased. I know the stock market is. Apple shows no signs of slowing…but I’m still not buying an iPhone!

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