Is Apple a Steal Before Its Biggest Quarter?

At the current price, Apple  (NASDAQ: AAPL  )  represents a lot of value for longer-term shareholders. Apple has a great line of products for the busy holiday season, and the company's revenue guidance implies that it is expecting its biggest quarter in its operating history. Apple has managed to silence a lot of its skeptics of late, and there are four reasons why a long position in Apple is warranted before the end of the December quarter. 

Innovation is very much alive
The biggest question mark surrounding Apple has been the innovation aspect of the company. However, the company's ability to innovate is still in place despite a lot of skeptics. The company's new line of iPhones has seen very strong reception from consumers across the globe.

In particular, the iPhone 5s has been a home-run, and is almost certain to sell tens of millions in units for the next few quarters. Also, the new generation iPad Air got very strong reviews, and the iPad Mini with the Retina display also comes at a very attractive price point of $299. As a result, the company's new line of innovative products will lead to very strong sales for the shopping season and beyond.

Handset market is now a duopoly
The market for handsets and mobile operating systems has become a two-horse race between Apple's iOS and Google's  (NASDAQ: GOOGL  )  Android. In Q3 2013, Android's market share surged to an astounding 81% and the market share of iOS stood at 12.9%, according to IDC. 

While the numbers might make Apple investors jittery, that should not be the case. Google has done a fantastic job of grabbing market share by allowing OEMs to use its OS for free. But these OEMs especially Samsung, LG, and Lenovo are selling huge quantities of phones at much lower ASPs relative to Apple.

And Apple is serving the higher-end market of the handset business and that is clearly reflected on its pricing strategy. Apple's ASP for the iPhone segment for the last quarter stood at $577, and the iPhone 5s is priced at $649. As a result, sequentially Apple's ASPs for the December quarter is very likely to increase due to a large quantity of 5s unit sales.

Apple seems to be very comfortable in its position serving the high-end and the mid-market of the smartphone business, and Android is largely serving the mid-market and the low-end in the handset business very nicely.

Can navigate in emerging markets
Apple managed to rope in the Japanese carrier, NTT DoCoMo in the last quarter And this deal with NTT DoCoMo will not only increase sales in Japan, but might possibly open the door for working with other carriers in Asia.

Speculations of Apple signing up China Mobile  (NYSE: CHL  ) have been on-going for a long time but nothing concrete seems to be in place. However, the China Mobile has a subscriber base of almost 760 million at the end of October. And China Mobile is adding subscribers at a rapid pace, and might be tempted to sign up with Apple to serve the different needs of its various consumer segments.

And a deal with China Mobile will be a big win for Apple's revenues and also Apple's shares. In addition to carriers, Apple is also opening a lot of retail stores outside the U.S. in 2014, and a number of those will be in emerging markets. Going forward, Apple should have a lot more revenues flowing in from emerging markets. 

Buyback will move the needle
Apple bought shares worth $23 billion in 2013, and still $37 billion of its share repurchase program remains to be executed.  And with a larger buyback in this fiscal year and next, Apple's share count will go down dramatically, boosting its EPS. 

Based on Apple's stellar cash flow, the company's buyback program is almost guaranteed to increase after the end of the current plan of buying back $60 billion. And the presence of activist investors like Carl Icahn might lead to a larger buyback plan as well.

Carl Icahn told Reuters that, "Apple is not a bank and that a large buyback should be put into place, as well as taking advantage of other ways this cash can be made more productive." And the activist investor is having constructive discussions with CEO Tim Cook to enhance the value of the company. The buyback programs will likely push Apple's EPS to the mid-40s in fiscal 2014, which should lead to a reasonable increase in the company's share price. 

The bottom line
Apple stock is still well below its all-time highs, and its share count is going down rapidly as well. The company's innovation engine is still humming, and the company can still have a sizable presence in emerging markets in spite of its relatively high ASPs. For buy and hold investors, Apple is a great investment right now because the company will have a great holiday quarter. The company's cash dividend and share repurchases will also aid in bolstering the total return from Apple shares. 

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