This article is part of our Rising Star Portfolios series.
Those who have followed my portfolio know I purchased ION Geophysical shares in late November. Earlier today I also made a move to purchase Schlumberger. While I'm keenly focused on opportunities in the oil patch, my "common sense" portfolio is built around investing anywhere in companies that I can understand, and where it's easy to see potential upside.
One such play right now is Apple
So what makes Apple so common sense?
1. Investors are afraid that Apple is bumping up against the law of large numbers, and are afraid to invest in the company as it crests past $300 billion in value. I'm not letting that deter me, because as Eric showed yesterday, despite the enormous hype surrounding smartphones, their outsized growth rates have only recently taken off.
iPhone sales managed to grow 93% last year (while smartphone sales in general were predicted to have grown 51%). That comes in spite of massive competition from Google's
2. The iPad is another key source of growth. As Eric demonstrated in his pitch yesterday, analyst expectations for iPad sales align with a scenario where Apple sells only about 20 million to 25 million units next year. That should prove light. Despite an oncoming glut of tablets, Google is still working out significant kinks with its new tablet version of Android, which should push most viable tablet competitors past the time Apple releases its iPad refresh sometime in April. Paired with an adept pricing strategy that puts initial iPad price points at $500, a level that's difficult to undercut by a meaningful margin, the iPad should maintain its dominant market share this coming year.
3. Projections don't take into account the massive uptake in other Apple products. While the iPod continues its flat-lined growth, areas like Mac sales have been growing at 26% annually. It’s a virtual certainty that sales of products like Macs and digital downloads should rise as consumers adopt other Apple products like iPads and iPhones in every increasing numbers, yet little of that is built into current expectations.
I'm a bit more sanguine on Apple's long-term prospects. We're still early into the mobile game, and no investor has all the answers on how this will shake out. Likewise I'm loath to go the often-used route of riding Apple's success by buying its chip suppliers like Broadcom
However, even with long-term reservations, there is little doubt Apple will outperform in the coming year. That's why I'm putting roughly 6% of my portfolio behind Jobs & Co. Just run the numbers. I know it sounds crazy, but 2011 will be another banner year for Apple.
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