Why We're Buying Apple

This video is part of The Motley Fool's "11 O'Clock Stock" series, in which we're buying a new stock every weekday at 11 a.m. ET on Fool.com. You can also check out a video of co-founder Tom Gardner explaining the series, and see our original recommendation of Apple  (Nasdaq: AAPL  ) .

In today's video, Fool.com analyst Eric Bleeker explains why he thinks Apple, the second-largest U.S. company by market cap, still has a lot of growth left in it. As he wrote in his original buy report, Apple has the following four factors in its favor:

1. iOS Scales. Even though iOS started on smartphones, it's now a dominant platform on tablets, and it could make further inroads into the home. 

2. Software is the new kingmaker. Building up a strong software platform with superior developer support is a much better competitive position than what mobile companies of the past had. 

3. Consumer behavior. Smartphones play on humans' irrationality by offering up a tantalizingly low subsidized price, while the real costs (an extra $30 a month for data, and so on) are backloaded over time. This situation allows for a much larger total addressable market than other non-subsidized consumer products of a similar price range can enjoy -- and Apple collects around $600 for every iPhone sold. What's more, 89% of iPhone users want their next phone to be another iPhone; for Research In Motion  (Nasdaq: RIMM  ) users, that number is 42%.

4. Underrated smartphone growth. The subsidized nature of smartphones and their rapid upgrade cycle make them a truly underappreciated trend.

As Eric points out, the iPhone is truly a global phone in an area that's likely to have huge growth in coming years. Meanwhile, the iPad is ramping up to 2 million units per month, another indication of how well Apple's products scale.

Even though Apple has had quite a run in the past few years, it's trading for only 15 times next year's earnings, and it comes with a massive cash hoard to boot.

For Eric's thoughts on Apple, watch the video below.

Interested in reading more about Apple? Add it to My Watchlist, which will find all of our Foolish analysis on this stock.

Eric Bleeker owns no shares of any companies mentioned. Apple is a Motley Fool Stock Advisor selection. True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community. The Motley Fool has a disclosure policy.


Read/Post Comments (8) | Recommend This Article (15)

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 September 19, 2010, at 4:02 PM, HiramWalker wrote:

    You're buying APPL but your website is buying ADBE.

    Get rid of the Flash videos and comments so I can read you on my iPad, where most of my surfing is done these days.

  • Report this Comment On September 19, 2010, at 4:09 PM, MrZ2357 wrote:

    That 42% predates the torch and the latest rimm earnings report.

    If that 42% were accurate, I would have expected to see lower numbers of devices sold in combination with lower new adds, basically a mass exodus was expected.

    Instead they reported 4.5 million new adds and total devices sold 45 million, up 45%.

    Subtract out the 4.5M from the 45M, rimm sold in round numbers 40 Million phones to EXISTING subscribers.

    Is that a record high?

    So I say that 42% is bogus.

    And if that's true, why should I put any credence in the 89%?

  • Report this Comment On September 19, 2010, at 9:49 PM, rlcato wrote:

    @HiramWalker: That's a zing! It's just pointless putting up a banner at the top saying visit our mobile site and then referring a Flash video knowing full well you'll have difficulty to not seeing it at all on a (Apple) portable device.

  • Report this Comment On September 19, 2010, at 11:29 PM, BadCopNoDonuts wrote:

    I <3 InfoThatHelp!

  • Report this Comment On September 20, 2010, at 12:16 AM, ragrillo wrote:

    The reasons to buy Apple are more fundamental than the ones expressed in the article. I make an extensive analysis in my blog:

    http://investbyads.blogspot.com/2010/09/embracing-zeitgeist-...

  • Report this Comment On September 20, 2010, at 2:08 PM, Aeoran wrote:

    InfoThatHelp, it seems that you have a genetic inability to understand simple math - or a malevolent intent to mislead by purposedly misinterpreting facts.

    I'll assume that you're simply ignorant, instead of a lying sack of manure. The former is curable; the latter is not.

    a) Devices sold is devices sold. Your 7.6 million BB "outstanding" would only be channel stuffing if channel inventory was actually rising. As I and others tried to explained to you previously, RIM is not showing any signs whatsoever of stuffing the channel.

    http://www.fool.com/investing/general/2010/09/01/will-resear...

    As for net subscriber adds - RIM has subscribers that pay extra money to get push service. This is extra money RIM makes on top of selling a phone, and RIM is the only manufacturer getting any significant recurring revenues from carriers. Let me repeat: neither Apple nor Google have such good customers to pay any significant money for subscription services and recurring revenue like this.

    Hence, your 37.2% figure means nothing.

    b) Your reference to BOGO is a non sequitur. RIM doesn't give away units; every unit sold pays RIM.

    c) I cannot derive the equation you used to translate 37.2% into 18.6% (other than dividing 37.2% by 2). Please share why you consider dividing 37.2% by 2 gives the "effective BB retention rate." For now, I am forced to consider this number to be a manufactured one.

    Actually, for now, I am forced to consider your entire argument to be manufactured and without any basis in logic or fact.

  • Report this Comment On September 21, 2010, at 12:46 AM, Aeoran wrote:

    @InfoThatHelp: I find it difficult to believe that a MobileMe subscriber would alternately be paying either $109/mo or $109/yr. And while I would hardly argue with you that you have a large collection of smartphone data reflecting RIM defections, I would say a) you must have a lot of time, to be collecting such a large collection of data; and b) you haven't presented any verifiable, reproducible data, and given your lack of credibility in any of your numbers that you present, and the ease with which you misinterpret any statistics, I will need to take your claims with a grain of salt.

    To put your latest one to bed - I don't know how many out of that 58% of RIM customers changed phones like you keep quoting, and frankly I don't think the guys who made up that survey are planning to verify their numbers either. If I start a survey here asking whether you are an idiot, I'd probably get a lot more than 58%. Would you believe my survey? What I do know is that the latest data says RIM sold a record number of phones last quarter, and more than 31% growth year over year, and is #1 in market share by reported numbers, not by some funny web survey. Verifiable facts. I like those more than made-up stats.

    And yes, I fully understand the push services offered by Apple ($99-109/yr) or Google (free). Neither one of them hold up a candle to RIM's push services, and neither of them make significant revenues on it. You may debunk my claim by showing me that either Apple or Google have 50+ million subscribers paying for push data each month - a number that is growing currently at 4.5M subscribers per quarter. Which is probably more than what Apple has in total.

    The reason for this is simple: neither Google nor Apple really understand wireless standards enough to offer push data services like RIM's. Yes, the details actually matter. And yes, the proof is in the pudding, and the proof is in the corporate and government dominance, where people vote with their dollars instead of with their posts to forums as you seem to do.

  • Report this Comment On September 21, 2010, at 12:01 PM, BadCopNoDonuts wrote:

    Righteous!

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