2010's Best Tech Stock: Apple

Apple (Nasdaq: AAPL  ) should be, without a doubt, the coolest company you know.

Even when it was lost in a haze, meandering about with a 3% sliver of the computer market before the iPod and iPhone were around, Apple still had a stylish panache. After all, this was a company willing to put out desktops in the form of teardrops and tissue boxes.

One of the heartiest validations for Apple came just a few months ago, when Sirius XM Radio (Nasdaq: SIRI  ) put out the XM SkyDock. It's essentially a portable auto receiver that uses an iPhone or an iPod touch as its display panel.

Think about that for a sec. The iPhone has just a tiny chunk of the wireless market, yet could you picture Sirius XM trying to create a SkyDock for the BlackBerry or Pre? Of course not. It had to be Apple, because Apple is just that cool.

2009 in review
Apple blazed through the recession practically untouched. It closed out fiscal 2009 in September with a 12% revenue boost and widened its margins to achieve an 18% surge on the bottom line. That would be a healthy year for most companies in good times, but the Apple story gets even better.

Apple's top and bottom lines accelerated during the final quarter. Revenue climbed by 25%, and net income soared by 44%. MacBook unit shipments rose by 35% during the same three months in which Microsoft (Nasdaq: MSFT  ) -powered portables took a hit. Sure, there was a small decline in iPod sales, but that was more than offset by iPhone growth -- and iPhones double as iPods anyway, so let's not go writing off Apple's music platform anytime soon.

Perhaps the most impressive aspect of Apple's performance is that the company's not showing you everything. As of the end of September, Apple had $14.8 billion in deferred revenue on its books. Some of that is from AppleCare support and protection plans, but the real juggernaut there is the iPhone. Even though Apple is selling a ton of iPhones -- 7.4 million in its latest quarter alone -- the company doesn't recognize the revenue behind the sale right away. It's realized during the two-year run of the AT&T (NYSE: T  ) contract.

A recent accounting-rule change to accelerate revenue recognition should help Apple on that front, since it packs a more potent punch to future income statements.

Then again, it's not as if Apple needs any enhancement work done. Apple has consistently beaten Wall Street expectations for several years now.

2010 in preview
Next year appears to be tee time for Apple's inevitable tablet, which should bridge the gap between its iPhones and MacBooks. With the iTablet, the sultan of style has a shot at overcoming its reluctance to enter the netbook scene, as well as its own AppleTV inefficiencies.

Apple will no doubt make new enemies, especially if its tablet device takes on Amazon.com's (Nasdaq: AMZN  ) Kindle and Barnes & Noble's (NYSE: BKS  ) Nook as a potential print-media savior. If it's marketed through wireless carriers as a connectivity gadget, it may very well disrupt the smartphone space, especially if Apple gets carriers to subsidize a steep discount to its price.

Even if there is no iTablet, one can naturally expect Apple to refresh all of its computing, portable-media-player, and iPhone product lines. That's what the cool companies do, Daddy-o.

Apple also may finally crack open its vault. The Cupertino giant has $23.5 billion in cash and short-term investments, with another $10.5 billion in long-term holdings. It's hard to justify that kind of mattress when your idle cash is generating just 1.1% in interest.

Apple could put some of the funds to good use and snap up Adobe (Nasdaq: ADBE  ) , but flash-y acquisitions have just never been Apple's bag. The same can be said of dividends or aggressive share buybacks. Nonetheless, the company's got to spend that cash on something.

Along the way, Wall Street expects Apple to grow revenue by 23% in fiscal 2010 to $44.9 billion. Earnings should rise by 24% to $7.79 a share.

The company's growth prospects find Apple priced surprisingly reasonable at 25 times this new fiscal year's projected profitability, and 21 times next year's forecast. Keep in mind that analysts have been lowballing Apple's bottom line for ages. It will probably grow faster than 24%, earn more than $7.79 a share, and therefore sport an even lower forward earnings multiple.

Cheap chic? You have to love Apple.

Is Apple the tech stock to own in 2010? Share your thoughts in the comment box below.

To see the full list of candidates for the Best Tech Stock for 2010, use the sidebar at the right or click here

Apple, Adobe Systems, and Amazon.com are Motley Fool Stock Advisor selections. Motley Fool Options recommends a diagonal call on Microsoft, which is also a Motley Fool Inside Value pick. Try any of our Foolish newsletter services free for 30 days.

Longtime Fool contributor Rick Munarriz loves looking at the future. He owns no shares in any of the stocks in this story and is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.


Read/Post Comments (6) | Recommend This Article (11)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 17, 2009, at 3:56 PM, Fool wrote:

    Excellent read on Apple. I do wish we could get another 2 furr 1 forward split but that is jmho :)

    APPLEBIRD

  • Report this Comment On December 17, 2009, at 6:24 PM, WMc5 wrote:

    I love your confidence in Apple for 2010.

    What has happened to Apple in the last month? I bought a sizable amount of Apple stock at $206 when many of the stock analysts were talking "it could go to $300." Now today, it is all the way back down to $191?

    Any analysis on why?

    The one piece of news that I was wondering about is the dilemna about being stuck in AT&T with such a limited network capability - and no deal with verizon. Is this significant in the bigger picture?

    Any other ideas on what is happening to make Apple weaken so recently?

  • Report this Comment On December 18, 2009, at 5:02 PM, gimponthego wrote:

    I know very little about investing which is one reason I spent money to invest in "The Fools". I am a novice.

    However, I understand the dynamic behind "buy low..sell high." I started buying RAX at $6...more at $10... and a lot more at $12. I live in San Antonio and got jazzed when they had the IPO.

    A friend said to let the cereal box settle..then start buying. Sure enough, RAX's IPO opened at something like $14. Days later it dropped to $5 and my friend said start buying now..and buy on the dips.

    Today, RAX closed at $22.55 and things are looking so good it's almost scary!

    I plan to stay on the computer, reading everything I can about this stock...and a few others. Take Care

  • Report this Comment On December 18, 2009, at 5:05 PM, gimponthego wrote:

    Oppps! Didn't realize this was Apple Only. I was under the wrong impression it covered "TECH" as a whole. I will be more careful in the future! Take Care

  • Report this Comment On December 20, 2009, at 4:33 AM, baldheadeddork wrote:

    WMc5 - I think Apple wins on the iPhone no matter what. Either they get another fat deal from AT&T or they offer it to Verizon and make a fortune off of app sales to all the new customers. (While I'm on the subject, VZ wins either by getting the iPhone or forcing T to write big checks every month to AAPL. Guess who loses?)

    But I don't think it's all roses for AAPL. The Droid OS is the most formidable challenger to the iPhone yet, and I think it's positioned to take a lot of smart phone sales that would otherwise go to Apple. Their growth in computers has leveled and they're having some big problems with bad displays on the new iMac series. And they've seem to have hit a wall with the iPod line. There are rumors/hopes of Apple getting into the tablet/book reader market, but if they are I think missing this holiday season was a big mistake. Bottom line, the company is making money and has massive reserves, but I don't think it's hitting on all cylinders right now.

  • Report this Comment On January 01, 2010, at 7:02 AM, Babble100 wrote:

    Apple still holds only a small sliver of its markets (except for iPod). Which means sustained strong growth is possible. Not only possible, but will happen because their products are superior. Look around you - everybody's buying MacBooks and iPhones and whatnot. Growth overcomes all other issues in the stock market - swings in sentiment, high prices relative to P/E and all the rest.

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