The Best Stocks for 2010: Apple

It's easy to call 2009 the year of the Apple (Nasdaq: AAPL  ) .

The cool cats of Cupertino delivered four more quarters of market-thumping growth. Refreshed MacBooks and iPhones helped improve on last year's already impressive performance. With the clock counting down to the end of 2009, Apple's shares have more than doubled -- up 145% year to date heading into this final trading week.

The party's just getting started, though. Despite the speedy gains worthy of the leopards, cheetahs, pumas, and other fast-moving cats that have served as recent operating-system codenames, Apple is really just getting started.

Sure, Apple is the undisputed market leader in portable media players, but the real bottom-line gravy will come from smartphones and MacBooks -- areas where Apple's market share still has plenty of room to run.

If you kicked yourself for missing out on Apple in 2009, don't make the same mistake come 2010.

Get tingly about tomorrow
Apple stared down the recession's long valley and laughed. Revenue grew by 12% in fiscal 2009, with expanding margins delivering a 16% uptick per share on the bottom line. Results actually accelerated during the final quarter -- up 25% and 44%, respectively -- and every indication points to a monstrous fiscal 2010.

Investors know that Apple's balance sheet is brimming with $14.8 billion in deferred revenue. Most of that is the iPhone's handiwork. Apple is selling iPhone 3GS handsets as if they were apple hotcakes -- it cleared 7.4 million along during the final three months of fiscal 2009 -- but the company recognizes the revenue over the two-year run of the AT&T (NYSE: T  ) contract. In other words, its income statements are still accounting for 3G and even original 2G devices that sold nearly two years ago.

Apple has always had a halo effect. When iPods were all the rage, they had a material impact on perking up MacBook and Apple desktop sales. Now it's time for the iPhone to carry the load.

It's true that Apple isn't the top dog in the wireless space. Nokia (NYSE: NOK  ) is the global leader, and Research In Motion (Nasdaq: RIMM  ) is still ringing in more smartphone sales, according to Gartner's recent market share data. However, how many handset owners are simply biding their contractual time until they can upgrade to an iPhone?

I'm not naive. I realize that most of the planet will never be able to afford smartphones and their costly data plans. I'm just confident that this is a premium market that Apple will own over the next few years. The market's lukewarm reception to bar-raising Palm (Nasdaq: PALM  ) and Android-flavored devices speak to both the near-term saturation and Apple's dominance.

Even if Apple does little more than keep up with its annual product refreshes, a premium brand like Apple is an easy one to warm up to as we claw our way out of the recessionary doldrums. What do you think will happen if Apple hits the market with a tablet computer?

An Apple tablet a day keeps the bears away
We're probably just weeks -- if not days -- from seeing Apple make the inevitable tablet announcement. As a flat, touchscreen computing device, the iSlate, iTablet, or whatever this contraption is ultimately called may revolutionize connectivity.

Just imagine what an army of third-party App Store developers can do with a bigger easel than the iPhone. Picture, if you will, Apple saving the publishing industry -- the way it tossed out a lifeboat to the music labels and movie studios -- with the "must have" gadget of the 2010 holiday season that makes it seamless and practical to begin consuming paperless content. Fathom what Apple can do with a device that feasts on connectivity, yet without the AT&T exclusivity shackles that is possibly holding the iPhone back from its true potential.

Despite its occasionally draconian ways on the App Store approval front, Apple has given Sirius XM Radio (Nasdaq: SIRI  ) , Vonage (NYSE: VG  ) , and countless other companies access to incremental revenue streams. Larger tablet devices can only help with Apple's ever-widening wingspan of relevance.

The future's bright no matter where you look
Buying Apple in 2010 isn't just about tablet computing. Analysts who aren't even factoring in a connectivity-gadget breakthrough see Apple's revenue and earnings climbing by 23% and 24%, respectively, this fiscal year, which ends in September. They also see earnings taking another 21% spike next year.

It's been an amazing run for Apple shareholders, yet the stock is trading for only 22 times next fiscal year's projected profitability. That's more than reasonable, especially given Apple's knack for consistently beating Wall Street's bottom-line targets.

Apple also has $23.5 billion in cash and short-term investments, with another $10.5 billion in long-term holdings. Given its historical ability to print money, Apple should be confident in its ability to use that money to tack on accretive acquisitions, repurchase shares if the stock stumbles, or finally give yield chasers the dividend they're seeking.

Add it up, and you have an investing vehicle with a full tank of gas and a lot of road to cover in 2010.

Enjoy the drive!

Which is the best stock for 2010? See all 13 candidates here.

Apple is a Motley Fool Stock Advisor recommendation. Nokia is 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 (5) | Recommend This Article (34)

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 30, 2009, at 3:01 PM, drmusaf wrote:

    I would buy Apple if it had a dividend. Outside of mutual fund investing, I'm only buying stocks with dividends and DRIPs -- AT&T is therefore my play on Apple, although I'm aware of its customer service problems. Hopefully AT&T will respond to these criticisms and keep their iPhone contract!

  • Report this Comment On December 30, 2009, at 5:49 PM, PSU69 wrote:

    I sold some of my AAPL as it hit the recent peak. Moving to PLNR and MWA. GOOG's Android will do more damage than some think.

  • Report this Comment On December 30, 2009, at 6:22 PM, jm7700229 wrote:

    Actually, the military is building a new supercomputer capable of 1,000 teraflops from (drumroll, please) 2,250 Sony Playstations! Apple won't be part of this revolution, but NVIDIA will.

  • Report this Comment On January 08, 2010, at 11:46 PM, sketh wrote:

    Apple grew over 700% in the last decade, mircosoft knows it, RIM, and Nokia know it. Apple may have been overlooked in the past, but its one bubble waiting to burst. Apple is introducing a tablet, it is suppose to be about 7 inches. Another device there to try and convince people that they need even more technology in their pocket. Need I say more..wait for this company to slow down, their still along way from being a cash cow. they still only own 8% of the computer market, and thats not likely to change. Without more integration to a PC (who, if they have any common sense at all will start to make apple products less compatable with PC) apple is doomed to be on the outside looking in for years to come.

  • Report this Comment On January 26, 2010, at 2:16 PM, kgveit2020 wrote:

    Dear Sketh,

    What planet are you on ?

    AAPL is not going to slow down....... they are just getting going !

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