Last January, a friend of mine asked if I would recommend buying Apple stock. This was after my piece at TUAW.com predicting big things for Apple in 2010 and beyond. In March (8th) I wrote this email recommending a “Buy” for AAPL. This was my first official stock recommendation (in 2003, I suggested to a friend that Netflix and TiVO would be good buys, but that recommendation didn’t really have any teeth and I didn’t buy anything at that time), and it generally worked out pretty well.
I thought it would be fun to review my recommendation (and logic) to see where I was right and where I missed the mark. Here’s an unedited version of the email I sent:
TO BE CLEAR, I’m not an expert. This is just my opinion based on what I’ve seen buzz-wise online, along with my own speculation about potential iPad/iPhone success.
Big reasons I feel like Apple stock is due for a nice jump over the next six months or so:
1. I think iPad is going to sell very well. The analysts seem to believe so as well. There have been several articles written* comparing the pre-sales polls of iPhone and iPad, and it appears that consumers have more of an appetite for iPad than they did iPhone before iPhone was released in 2007. While I don’t think the iPad will sell nearly as many units as iPhone, I think it will sell very well, and will sell better than most have predicted. Obviously, better sales translates to rising stock price. iPad is going to be an e-reader killer – I think this is certain. But iPad offers a lot of other functionality and Apple has been very clever about building partnerships with content providers for this device. Kindle, Nook and other e-readers are about to get massacred by the iPad. This device basically will do for data sharing and consumption what the iPhone did for call-making and web-surfing devices.
2. The 4th generation iPhone is rumored to be coming out in June/July. I think it’s going to be a pretty big redesign** (I will explain this opinion below), but what’s interesting is that there are very few rumors/leaks regarding the new version so far. This is an advantage to current would-be investors because I’m pretty sure their stock will see a nice uptick once they announce the new phone and its features.
The iPad goes on sale like first week in April. The new iPhone specs/features should be announced about 6 weeks later, and it should go on sale at the time or within four weeks of the announcement. So, from first week in April (when iPad goes on sale) until probably late July (when new iPhone will likely be on sale) there will be an overlap of TWO big, new products that I think will be recieved very well. This bump should last a couple months after the new iPhones go on sale, and then will likely abate. I think this will result in an unusually big uptick for Apple stock since TWO technologies will likely be doing very well for them in this window. I’m considering buying a few shares (I don’t have much cash, and they’re trading at about $220 right now, so they’re not cheap) myself. But I don’t know if I’ll actually pull the trigger.
*Links to articles:
http://digitaldaily.allthingsd.com/20100223/initial-ipad-demand-greater-than-initial-iphone-demand/
http://news.cnet.com/8301-13506_3-10458459-17.html
**Why I think 4th gen iPhone will be a big redesign:
1. The 3GS was NOT a significant redesign. It was an incremental update, and it definitely improved the product, but very few people upgraded or switched (as opposed to the 1st gen iphone to iPhone 3G, where a lot of people upgraded, finally bought iPhones or switched from other carriers because the 3G price was so heavily subsidized by AT&T and reduced by Apple to a lower baseline).
2. This is the big one: Other manufacturers are finally starting to catch up to the functionality and specs of the iPhone. Google’s DROID phones are nipping at iPhone’s heels. Pretty much every handset manufacturer is finally trying to replicate iPhone. To iPhone’s credit, it has taken competitors THREE YEARS to ALMOST catch up. Apple knows this, and Apple knows that they are dominating the handheld device market right now, and they want to continue improving market share. They do this by re-reinventing the mobile phone with a 4th gen iPhone.
SUMMARY:
When we spoke in January, I was a little skeptical as to whether AAPL was a good buy. The chart from then to now reflects my skepticism:
[AAPL’s January to March chart was referenced here.]
They dipped right after that conversation, and they appear to be on the upswing now. I think this upswing will continue for probably 5-6 months because of iPad/iPhone releases. I think now is a good time to buy some AAPL.
So how did I do? Here is AAPL’s chart for the past year. I ended up buying some shares of AAPL, but not until May 11, so I bought in at $250 a share, and AAPL is at $336 as I write this.
What I got right:
- Buying on March 8 and selling on September 8 would’ve yielded about 20% return. Not bad. The S&P 500, NASDAQ and Dow Jones were all slightly down during this period.
- iPad was a huge success.
- iPhone 4 was a very significant redesign and an enormous seller.
- AAPL had a great year in 2010.
Where I messed up:
- Obviously, selling at the six-month mark would have been a bad idea. I didn’t sell, and neither did my friend. It was a mistake to try to predict performance in such a short window.
- I was wrong about how the price would improve over time. Instead of gradually improving over several months, it spiked up then traded sideways for quite a while.
- I overestimated the impact of iPad on e-readers. I think iPad hurt e-readers, but it mostly created a new niche that it filled on its own.
I’ve been thinking a lot about Apple in 2011, and my intuition tells me that 2011 won’t be as good as 2010 was. I think Apple will have a strong year in 2011, but 2010 was a big, big year for them.
If I’m able to formulate enough opinions to justify a blog post with some predictions this year, I’ll be sure to put them up.