Is Apple really such a great deal?

One investor has his doubts. Here’s why.

a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Without fail, there’s one task that you can regularly do that will help you improve your decision-making in investing and life: Keep a journal of your decisions. When it comes to investing, that means writing down exactly why you’re buying certain stocks, and exactly what would have to happen to consider selling.

On July 16, 2010, I bought my first shares of Apple (NASDAQ: AAPL) . Below, I’ll share my journal entry from that day, and explain why I’m so conflicted on what to do with the stock.

Reasons for buying
I like to follow the KISS rule for investing: Keep It Simple, Stupid! There’s so much information out there that unless I keep my investing simple and focused, analysis paralysis is unavoidable. So here were my four reasons for buying.

1. Apple produces gadgets that are incredibly user-friendly and useful.
There’s no doubt that when the iPod came out, the simple concept of “hundreds of songs right in your pocket” was easy enough — and true — to make the product a hit. Since then, the iPad, iPhone, and newer iterations of laptops (one of which I’m typing this on) have followed suit.

At the same time, however, rivals have gained ground. Though I don’t have a smartphone (I’m truly old-school, with a flip-phone), I know that many of my friends have Samsung phones that run on Google‘s Android operating system. These phones are just as easy to use. So while Apple certainly hasn’t taken a step back, the competition is certainly closer than it was three years ago.

2. Apple has enormous potential to expand abroad, especially with smartphones
This has really played out over the past three years. Sales in the Asia-Pacific region have exploded, growing over 300% between 2010 and 2012, and it now accounts for a much larger percentage of Apple’s sales.

Source: SEC filings.

This is a point I will be paying especially close attention to in next week’s earnings, as sales in Apple’s “Greater China” segment increased by 67% last quarter, but the rest of the Asia-Pacific grew at a much more tepid 10%.

3. Apple’s potential is underappreciated by the market, especially because of its large market cap.
I don’t think this is as much of an issue anymore. Back when this purchase was made, Apple’s growth was difficult to believe, and it traded with a market cap of about $235 billion. Since then, it’s been valued at as much as $660 billion, making it — for a short while — the most valuable company in the world. I don’t think market cap alone is what’s holding Apple’s stock back right now.

4. Apple’s past leads me to believe they will continue to innovate game-changing products
This is where the crux of everything hinges. In my “reasons that would make me consider selling” section of my notes, I very clearly wrote two things:

  • All future products are just mild regurgitations of previous ones.
  • Steve Jobs leaves the company.

From the standpoint of an everyday Joe who is not a techy, both of these concerns give me pause. Sure, Siri is cool and the Retina display is impressive, but since the iPad came out, I haven’t seen a ton of serious innovation.

There have been rumors, and Tim Cook has been promising us great products in the pipeline, but the proof is in the pudding, and I personally haven’t seen anything.

As more and more time goes by, I’ve become convinced that the competitive advantage Apple had was Steve Jobs and, essentially, nothing more. At the same time, I know that he did everything possible to make innovation part of the DNA of the company, even creating Apple University.

Where does that leave me?
One thing is for sure, at today’s price, Apple looks like quite a deal. Take a look at the metrics for the company when I decided to buy in and today.

 Metric July 16, 2010  Today
Price $250 $395
Price to earnings 21 9
PEG ratio 1.1 0.5
Price to free cash flow 19 8

Sources: Yahoo! Finance and Fool.com.

By almost any metric measurable, Apple is very cheaply priced. I’m certainly not buying more shares right now, as my concerns about Jobs being the true differentiator are still very much there. However, because shares are trading for so low, and because I vowed to hold shares for three years in my retirement portfolio, I won’t be selling any either.

Not an Apple believer? There are plenty of other great investments for your portfolio. The Australian Financial Review says “good quality Australian shares that have a long history of paying dividends are a real alternative to a term deposit.” Get “3 Stocks for the Great Dividend Boom” in our special FREE report. Click here now to find out the names, stock symbols, and full research for our three favourite income ideas, all completely free!

More reading

The Motley Fool’s purpose is to help the world invest, better. Click here for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.  This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

A version of this article, written by Brian Stoffel, originally appeared on fool.com.

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

asx share price competitions represented by businessmen arm wrestling
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

person reading news on mobile phone
⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »