Thursday, April 30, 2015

4 Reasons to Like Apple Stock Right Now

Apple stock is on the rise, and for good reason

Earlier this week, Apple Inc. (NASDAQ:AAPL) reported its second-quarter earnings, beating Wall Street estimates thanks to better-than-expected sales figures for the iPhone, particularly in China.

While Apple stock faltered a couple percentage points after the report, at least a couple Wall Street firms have upgraded their ratings and price targets on Apple stock.

Among such firms are Morgan Stanley, which has given AAPL a price target of $166, and Goldman Sachs, which maintained its “buy” rating but increased its Apple stock price target to $163 from $145.

Aside from being one of most (if not the most) influential and innovative technology companies of the past decade, AAPL continues to expand its global presence where others that have come before simply failed. Regardless of whether you’re an iPhone owner or not, Apple’s position as the world’s leading tech innovator can’t be denied.

If you don’t already have Apple stock in your portfolio, there are a number of reasons to consider taking up a position:

Millions of iPhone owners haven’t upgraded yet: Morgan Stanley has estimated that there are approximately 425 million iPhone owners, and Apple CEO Tim Cook stated that only 20% of them have upgraded to the latest iteration, the iPhone 6. That leaves a potential base of roughly 340 million existing customers who could theoretically purchase a newer device.

An additional $50 billion has been added to Apple’s share repurchase authorization. Since the company began buying back shares of Apple stock in 2012, the original $45 billion authorization has been increased each year. As of the end of its second quarter this year, AAPL has repurchased more than $112 billion worth of Apple stock. The current authorization has been extended until March 2017 with $140 billion allocated to the program.

Apple Pay might soon arrive in China. While touchless payment systems in smartphones have existed for many years, it wasn’t until the October 2014 launch of the Apple Pay service that this capability actually became popular. Using Near Field Recognition technology, smartphone owners can pay for in-store purchases by simply waving their device in front of capable checkout modules. Apple brought the technology to the mainstream late last year, and now boasts more than 700,000 capable locations.

Earlier this month, the Chinese government announced the suspension of overbearing regulatory guidelines for the banking industry that require companies to reveal secret source code data and encryption methodology before receiving approval to begin operations. The suspension opens the door for AAPL to renew talks with Chinese credit card processors interested in implementing Apple Pay technology.

Demand for the Apple Watch exceeds supply capabilities. Tallying up the pre-order sales of the Apple Watch indicates that consumer interest is far above what the company originally anticipated. Reports from Apple’s supply chain estimate that demand could be as high as 2 million Apple Watches per month.

However, AAPL experienced a minor bump in the road when it was discovered that the taptic engine — the part of the Apple Watch responsible for creating a gentle tapping sensation on the wearer’s wrist — began to malfunction after only short periods of use. Management was not concerned, though, because none of the watches containing the faulty component were shipped to customers, and the company manufacturing them was one of two sources (those from the second provider did not experience the same defects).

Bottom Line


Considering the impressive performance of Apple stock thus far and the points mentioned above, combined with outstanding guidance provided by AAPL management for Q3, there isn’t much not to like. Apple is dedicated to innovating the tech industry and developing products and services across a myriad of sectors. Money is not in short supply, and Apple isn’t afraid to venture into new areas.

All things considered, Apple stock is deserving of the price targets and upgrades issued by analysts, and shareholders will ultimately benefit.

Article originally appeared on InvestorPlace (04/30/2015)