My Money Is On This Hot Stock

Today I'm going to tell you about a technology superpower that, within the next two months, I'll be buying into with $4,000 of my own money. I'm so confident that my pick will outperform the market that if I sell any shares within the next three years, I'll donate $100 to charity.

This is the fourth article in a series that I'm writing about my retirement portfolio, which I'm dubbing "The Cheesehead Portfolio" in honor of my home state of Wisconsin. If you wish to see my first three selections for the portfolio, check them out:

Three years from now, I fully expect today's pick, Apple (Nasdaq: AAPL  ) , to handily trounce the market, thanks in no small part to its dominance of the technology world.

Truth be told, there's so much that has been written and so much to say about Apple, that I'm going to break down my reasons for buying into three categories.

Health of a CEO
Quite possibly the biggest drawback when investors look to Apple is the health of CEO Steve Jobs. I have covered the issue on two separate occasions. Specifically, I have been trying to glean as many possible clues as I can to determine what type of leader Steve Jobs is: Level 4 or Level 5.

The basic difference between these two is that while both have overwhelming success when at the helm of their companies, Level 4 leaders do not set their organizations up for success after they leave, while Level 5 leaders do.

Let's face it. Someday -- whether tomorrow or five years from now -- Apple will be Jobs-less. When that day comes, the company will still have its hands full dealing with competition from Research In Motion's (Nasdaq: RIMM  ) phones, Microsoft's (Nasdaq: MSFT  ) office suite, Netflix's (Nasdaq: NFLX  ) streaming options, and Google's (Nasdaq: GOOG  ) Android.

I believe that Jobs -- possibly realizing his own mortality -- has taken steps to ensure institutional greatness. Case in point: Jobs recently hired Joel Podolny, dean of the Yale School of Management, to start what was dubbed Apple University. It aims to institutionalize the DNA that has led to Apple's greatness. Courses are taught based on case studies from how key decisions have been made during Jobs' tenure.

iEverything
When it comes to making products that people just need to have, Apple does it better than anyone else. And that appeal isn't limited to the United States.

As fellow Fool Eric Bleeker pointed out recently, Apple is becoming an international juggernaut. The chart below, shamelessly stolen from Eric's story, shows just how fast international sales have grown ... and how far they could still go.

Market

Sales Growth Between 2005 and 2010

Profit Growth Between 2005 and 2010

Percent of Total Profit

Americas 268% 682% 37%
Europe 508% 1,518% 37%
Japan 331% 1,156% 9%
Asia-Pacific 727% 2,991% 18%

Source: Capital IQ, a division of Standard & Poor's. Retail sales are distributed in proportion to general sales levels. Accounting for regional differences in retail store sales, end sales may differ slightly.

The iPhone and iPad are the it products for the entire world right now. And even though profits from Asia have grown 2,991% in the last five years, they still only make up about half as much as in the U.S. or Europe -- and Asia's market potential is considerably larger.

Apple gets it
But maybe the most encouraging, and simultaneously underappreciated, development that has me excited about Apple is its release of iCloud. Sure, much has been made about its possibilities for dominating the musical sphere once again. And don't get me wrong, Pandora (NYSE: P  ) and Sirius XM (Nasdaq: SIRI  ) better be prepared for a dogfight if they want to survive.

But there's far more to the iCloud than just music. If Apple can make the cloud as seamless as it claims it can, computing won't be about hardware anymore -- just whether you have access to your ... well ... everything on the cloud.

Before this announcement, Apple's key edge over the competition was that it simply produced products that were in much higher demand. While that's admirable, it is by no means an enduring competitive advantage. With the iCloud, switching costs could become so high for choosing a competitor that Apple will be able to lock most people in as users for life.

Foolish takeaway
If you want to keep tabs on Apple, I suggest you add it to your watchlist today.

In the meantime, if you're interested in learning more about how cloud computing will be revolutionizing how we go about computing, I welcome you to view a special video we have prepared free of charge: "The Two Words Bill Gates Doesn't Want You to Hear." In it, you'll get a better idea for what cloud computing really is, and what two companies are poised to profit from the trend more than any other. It's yours, absolutely free, by clicking here.

Though Fool contributor Brian Stoffel loves charity, he has no intentions of shelling out by selling early. He owns shares of Apple, Netflix and Google. His holdings of Apple will be at least $4,000 by Aug. 20, 2011.

The Motley Fool owns shares of Google, Apple, and Microsoft. Motley Fool newsletter services have recommended buying shares of Netflix, Google, Microsoft, and Apple. Motley Fool newsletter services have recommended buying puts in Netflix. Motley Fool newsletter services have recommended creating a bull call spread position in Apple. Motley Fool newsletter services have recommended creating a diagonal call position in Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (10) | 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 June 30, 2011, at 12:44 PM, LOS54 wrote:

    The author is this article is soooo full of it. iCloud can only challenge Sirius with music content and that goes for Pandora as well. Unless iCloud and Pandora start bringing on live content personalities, sports and etc you can stop the fear tactics to lower the SIRI stock. Yes, I will agree with you Apple is a great company, but I don't see it biting into their core business.

  • Report this Comment On June 30, 2011, at 1:01 PM, Billiardman wrote:

    So, you think buying 12 shares of AAPL is a show of confidence. What clued you in to the fact that AAPL is a winner? Welcome to the party.

  • Report this Comment On June 30, 2011, at 1:05 PM, Billiardman wrote:

    BTW, I have large positions in AAPL and SIRI. I've made more money with SIRI. And I expect to continue to make money with both. But I will continue to make more with SIRI.

  • Report this Comment On June 30, 2011, at 1:06 PM, mikecoursey wrote:

    Ummm, so ok. I agree, Apple is a great company, Steve Jobs is a great CEO, maybe the iCloud is a great new innovation (though Google has actually been developing stuff like this for their Chrome platform for about the past 3 years). Additionally, maybe Jobs is training his replacement(s).

    Is any of that really relevant to whether or not you should own the stock if AAPL is overpriced.

    My answer is an emphatic NO!

    Bottom line, you need to wait for a margin of safety in the price compared to retail value of the company before you buy. If you didn't then you paid too much and your returns are not going to be as good as they could have been.

    It is how only the world's most admired investor buys stock and it is how we all should if we want consistent returns of 20% or more compounded annually.

  • Report this Comment On June 30, 2011, at 1:22 PM, waterinfo wrote:

    I agree that Apple is a great company and has been a great stock.

    The problem is that everybody already owns it. Look at the holdings of just about every mutual fund and AAPL is on the list.

    So as long as AAPL does well the stock will tend to follow the market, because it is such a major part of every index.

    But, if AAPL falters in any of its endeavors, the stock will fall like a rock........because everybody already owns it and there will be nobody left to buy it.

  • Report this Comment On June 30, 2011, at 1:29 PM, caltex1nomad wrote:

    I wish I had followed my gut and bought Apple when Jobs came back in the 1990's and they received a $150 million cash infusion from Microsoft but, I listened to a Financial Talk Show host instead. I believe the stock was trading in the $20 range at the time. I would be more inclined to buy now if they would do something with all that cash...Like pay a dividend.

  • Report this Comment On June 30, 2011, at 1:33 PM, brewersfan81 wrote:

    @mikecoursey-

    I'm interested, what makes you think the stock is potentially overvalued?

    @waterinfo-

    I agree, the thing that could be holding the stock down is that so many people already own it. That doesn't change the fact, though, that in the long (years and decades) run, price will follow earnings, and I have faith in AAPL continuing to grow earnings.

    Brian Stoffel

  • Report this Comment On June 30, 2011, at 2:24 PM, mikecoursey wrote:

    @brewersfan81

    I didn't say that AAPL is overpriced I said

    "Is any of that really relevant to whether or not you should own the stock if AAPL is overpriced."

    With the emphasis on the IF...

    What I am saying is that I have AAPL on my watch list but there is not a high enough margin of safety in the price relative to the "retail value" in order for me to buy and I will not buy until that margin of safety is satisfied.

    Currently, AAPL is below my "retail value" but has not reached my margin of safety price. If you are comfortable buying at this price then you should go ahead. I'm a relatively newer investor so I am not going to second-guess my calculated margin of safety at this point.

    What I was pointing out is that your article makes no mention of a margin of safety of price with respect to value as part of your decision in purchasing. I think, inherently, that is a mistake.

  • Report this Comment On June 30, 2011, at 2:59 PM, MAXwolf wrote:

    Someone mentioned above that everyone owns Apple, I agree and a lot of them are retail investors, which means one should be careful.

    Apple will stumble someday, they all do, and when that happens, all of the religious buyers will panic and head for the door.

    BWY, I would not put ANY high tech company in the long term account and forget it, thinking it will put little (whomever) through college in 15 years. Far too many dead high tech companies. It is too easy for disruptive technologies to cripple them.

  • Report this Comment On July 01, 2011, at 8:57 AM, scomata wrote:

    "Maybe the iCloud is a great new innovation"

    Not an inovation at all, thin client computing has been around for decades in many forms. Its the financial model that is the inovation...if it works.

    If you have an internet email account, ISP account with on line storage, done your taxes on the TurboTax website, etc, you were 'cloud computing', just by another name.

    Nothing new here but the ability of a company to afford to provide that many server resources AND make money, IF they make money. That has not been determined.

    Blind faith in a company that is doing well now after nosediving in the past is a questionable path. You cant make 60% profit on iPhones forever.

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