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Apple: 3 Reasons It Might Be Time to Buy

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Apple's (NASDAQ: AAPL  ) had a decent year with gains of 25%, but it still remains more than 20% off its all-time highs. But the company's deal with China Mobile (NYSE: CHL  ) , new product launches, and new services to contend with the likes of Pandora (NYSE: P  ) and Sirius XM (NASDAQ: SIRI  )  could indicate now is the time to buy Apple shares.

It's time for growth in China
In 2014, Apple is expected to sell nearly 180 million iPhones, which gives it a 14.9% global market share. While Apple's presence in the U.S. is high, the company has failed on many levels to monetize China, a massive market where Apple needs to succeed. In fact, Apple sold just 22 million iPhones in China during 2013.

Last year, China shipped 360 million mobile devices, and this year that number is expected to grow to 450 million. Apple's relatively small 7% market share in China has taken a backseat to the likes of Samsung, Lenovo, and also China-based companies like Yulong. There are two things all these leaders have in common: partnerships with China Mobile and large screen devices.

For the first part of the equation, Apple finally signed a deal with China Mobile last year after being absent from its 710 million subscriber network during all of its success. This deal clearly works to the benefit of Apple but also for China Mobile.

China Mobile is selling the iPhone 5C in China for $733, which means it's not subject to the same subsidized pricing offered by U.S. telecom giants like AT&T and Verizon. Essentially, China Mobile makes a profit from the device when it's sold rather than having to wait over the life of a two-year contract to generate a profit. As a result, China Mobile can attract new subscribers who may want to purchase an iPhone and won't suffer immediate margin pressure thanks to the deal.

With that said, there is still the problem of Apple's market share, which might naturally be boosted thanks to the China Mobile deal. But as previously mentioned, there is a link between screens greater than 5 inches -- iPhone's screen size is 4 inches -- and leaders in the space. Thus, back in February a leak from China on showed pictures of an early stage iPhone 6, showcasing screen sizes between 4.7 and 5.7 inches.

U.S. consumers have been begging for a larger iPhone for the last two years, which Apple has yet to provide. But to capitalize on the China market, it finally looks as though Apple has an incentive. As a result, its China Mobile deal combined with larger iPhones provide reasons to be optimistic for Apple investors.

iTunes Radio makes itself heard
Apple is entering the music space with authority, offering a mobile service that's been compared to Pandora and now penetrating the in-car arena with a service that some believe will cripple Sirius XM.

First, in less than six months, iTunes Radio has already become the third most popular U.S. music streaming service, controlling 8% of the market with 20 million users. Clearly, this competes with Pandora, which owns a 31% share.

Earlier this month shares of Pandora fell from all-time highs after it reported slower listener-hour growth relative to prior months. The 11% monthly growth was impressive, but the company's decision to stop reporting monthly listener growth is what alarmed investors. Given iTunes Radio's growth, perhaps it's already starting to affect Pandora and, if so, it has a lot of share to gain.

CarPlay: Coming to a driveway near you!
Then, there's CarPlay, an infotainment system that incorporates Apple's operating system, Siri, iTunes, etc., to send messages, listen to music, make calls, and for navigation. The first version of CarPlay will be found in luxury auto makers Ferrari, Mercedes, and Volvo. But Apple already has deals with other manufacturers like GM, BMW, Nissan, and Honda that will roll out in the near future.

With the service not yet launched, we don't know exactly how Apple will be compensated from auto manufacturers, or if it will lead to increased iTunes purchases. Still, Sirius XM has built a near $4 billion a year business by operating exclusively in this space. Since November, shares of Sirius have fallen 12%, and with CarPlay customers not paying for service and able to listen to artists and songs of their choice, it is likely that Sirius XM's decade old technology will feel the heat of new-age competition. Regardless, CarPlay and Apple's long line of manufactures bodes well for investors.

Final thoughts
Out of all these developments, market share in China is the only noted event that could drive substantial year-over-year fundamental growth. In regard to CarPlay and iTunes radio, both combined might only create $1 billion in revenue this year. But if successful, it's the innovation involved with these two services that might spark optimism, which consequently leads to gains.

As for Apple boosting its presence in China, gaining China Mobile and offering iPhone 6 models in different sizes can't hurt its chances to grow. With that said, even a 3% market share gain through the addition of China Mobile and new launches could add an extra 13.5 million units. If Apple exceeds expectations by this number, its stock is most certainly to rise.

Combined, these catalysts over the next year make Apple an attractive stock to watch, buy, and hold. Furthermore, at 13 times earnings, with a dividend of 2.3%, and the company buying-back stock, there is small downside risk. Thus, Apple looks like a golden opportunity.

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Read/Post Comments (7) | Recommend This Article (3)

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 March 13, 2014, at 3:32 PM, TMFAeassa wrote:

    Nice article, Brian! :-)

  • Report this Comment On March 13, 2014, at 9:48 PM, 67vair wrote:

    Carplay is just another jukebox and will not hurt Sirius

  • Report this Comment On March 13, 2014, at 10:07 PM, iphonerulez wrote:

    Apple is going to have another mediocre quarter and the stock is going to drop yet again. Tim Cook knows nothing about getting shareholder value out of the company. Apple will continue in its same old losing ways while sitting on a mountain of reserve cash. Most companies would take advantage of the cash and grow their revenue, but Tim Cook won't do anything except talk about some mythical pipeline that nobody is certain it even exists.

  • Report this Comment On March 13, 2014, at 10:47 PM, theprodoc wrote:

    AAPL is a great company with great cash flow and a lot of reserves. I agree that things are taking way too long to change while other major players seemingly pass AAPL...very quickly! Too quick for me since I'm a big AAPL investor! Tim Cook doesn't give the investors a=or potential investors ANY reason to buy the stock. He acts arrogant as if he's hiding the next big thing, that never comes to fruition! I understand Samsung and all the other competetitors steal everything Apple says or does or even thinks, so we need to keep things very secretive due to the Asian businesses stealing all the hard worj of Apples R and D. There has to be a way for Tim Cook to get investors excited for new products. People shouldn't continuously walk out of an Apple share holder meeting scratching their heads thinking, 'Why do I continue to own this stock'? That's NOT good and a CEO has a responsibility to make their share holders excited and want to go online and buy more share, not sell them because there's no new revenue to outgun the competition! Motley Fool goes both ways too!!! You nned to make up your minds and quit applauding Apple today after bashing it only last week with NO NEWS!!! Picj=k your stocks and stick by your picks!!! No one likes a Monday morning QB!!!

  • Report this Comment On March 13, 2014, at 10:51 PM, BillFromNY wrote:

    I think that the author should have delayed publishing this article until he had a better understanding of the subject matter. My five year old Lexus can already do everything that CarPlay can do except connect to iTunes. What is special about CarPlay?

    <i>with CarPlay customers not paying for service and able to listen to artists and songs of their choice,</>

    This ability is provided by Pandora and the other "jukebox" stations like Spotify. Pandora is signing its own agreements with auto companies.

    To compete with Sirius, Apple would have to pay millions to match or outbid Sirius for content. This includes many music stations. Sirius has studios, DJs, hosts, guests, and other expenses for many of its music channels. How is Apple going to get its customers to pay for all this? Sirius subscribers (currently 21.5 million) pay $150 - $200 annually.

    Eventually Sirius will face serious competition from somewhere, but I don't see it yet.

  • Report this Comment On March 14, 2014, at 3:22 AM, JaredPorter wrote:

    @BillfromNY. Did you know that with CarPlay you can listen to curated iTunes Radio stations without ads for $20/year or for free with occasional ads? This service can be freely channeled from your phone through the Car Play interface built into your car. And can your Lexus compose VOICE actuated messages and read back messages received, all using Siri, employing a single steering wheel button? This should be a great boon to safety as the mobile messaging genie cannot be put back into the bottle, I'm afraid. So at least now, you can keep your eyes on the road as this interface doesn't even display the written message!

  • Report this Comment On March 14, 2014, at 4:39 AM, Interventizio wrote:

    4.7 inches? Not enough. A large screen is a must nowadays. Let's hope Cook doesn't screw this up.

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Brian Nichols

Brian Nichols is the author of "5 Simple Steps to Find the Next Top-Performing Stock: How to Identify Investments that Can Double Quickly for Personal Success (2014)" and "Taking Charge With Value Investing (McGraw-Hill, 2013)". Brian is a value investor, but emphasizes psychology in his analysis. Brian studied psychology in undergrad, and uses his experience to find illogical value in the market. Brian covers technology and consumer goods for Motley Fool. Brian also updates all of his new and current positions in his Motley Fool CAPs page. Follow Brian on Twitter and like his page on Facebook for investment conversations and recent stories.

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Related Tickers

8/28/2015 4:00 PM
AAPL $113.29 Up +0.37 +0.33%
Apple CAPS Rating: ****
CHL $59.74 Down -1.60 -2.61%
China Mobile CAPS Rating: ****
P $18.10 Up +0.61 +3.49%
Pandora Media CAPS Rating: *
SIRI $3.83 Up +0.04 +1.06%
Sirius XM Radio CAPS Rating: ***