Why I've Bought Apple

LONDON -- Having made Apple (NASDAQ: AAPL  ) one of my tips of the year, and bought some shares for my personal portfolio, I thought I'd write a more detailed article explaining my choice.

I was talking to a friend during a Christmas get-together. I told him that I had recently bought shares in Apple, and that I thought it was a good investment.

No, he said to me, he thought that the boys from Cupertino were past it. Mentioning the Google Maps fiasco, he said that Apple just wasn't the trail-blazing company it used to be. He felt that companies like Samsung and Google were now more innovative.

Read the news about Apple and all you hear is doom and gloom: "Is the mighty Apple corporation floundering?" "Another crack in the mighty Apple brand." Yet in the summer of 2012, people were constantly singing out the company's praises. How could so much change in just a few months? Is this technology titan really on the path to oblivion? Let's dig deeper...

A booming phone and tablet market
The latest figures show that the iPhone 5 grabbed 53% of the U.S. smartphone market. The market share in other markets is less, but market research company IDC has predicted that Apple's global market share in smartphones will actually increase from 2012 to 2016.

And remember this is a market which, as a whole, is growing as more and more people trade up their mobiles for smartphones. With Apple's hefty margins, it is making truckloads of money on smartphones.

What about tablets? According to IDC, Apple's market share in tablets will fall from 53% in 2012 to 49% in 2016. Sounds disappointing? Well, not when I tell you that the tablet market is predicted to expand from 122 million in 2012 to 282 million in 2016, so Apple's tablet sales will actually increase from 65 million to 140 million.

Wait till emerging markets take off
Then there is China. The latest iPhone has been registering record sales in China. Yet the iPhone isn't even sold by China's largest carrier, China Mobile. But Apple is expected to reach a deal with China Mobile in 2013. And at the moment, hardly any iPhones are sold in India.

The reason why iPhone sales in emerging markets have, up to now, lagged those in developed markets is the lack of high-speed mobile networks. As this infrastructure is built, the smartphone market in these countries will take off.

With all these factors, even if there is a slight erosion of margins, profits are still likely to rise.

What about volatility?
But given the volatility of tech shares, is Apple really a good long-term investment? Well, technology definitely can change quickly, and I certainly don't think I will be holding these shares in 20 years' time.

But I do think we are in the midst of a long-term trend away from computers and laptops and toward smartphones and tablets, which will be to the benefit of companies like Apple and ARM. At some point Apple's profits will peak, but I don't think we have reached that point yet.

So, to finish: Apple's share price has slumped by nearly a third in the past few months, and the company is now on a forward price-to-earnings ratio of just 9. Plus I haven't even mentioned its $125 billion cash mountain. The company is now firmly in bargain territory.

I never thought I'd say this, but -- from being the go-go share of the moment -- Apple is now a contrarian buy.

By digging down deeper into a company's accounts and track record, you can learn so much about its future prospects. Seeing beyond sentiment and current opinion, Warren Buffett had the ability to focus on the fundamentals of a company, and by doing so he could unearth unloved shares which would make him a mint.

So when he invests in a company on this side of the Atlantic, people take serious note. Read our free report on "The One U.K. Share That Warren Buffett Loves."

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Comments from our Foolish Readers

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  • Report this Comment On January 07, 2013, at 4:25 PM, TimKnows wrote:

    So sorry to hear about your losses. Apple is a very poor investment for 2013 as they don't have a single thing to offer consumers now. Sure, they might add another row of icons but don't you think that been done enough? Let's hope you can make it back on something else like Google or Amazon or RIM or NOK or any bloody thing else.

  • Report this Comment On January 07, 2013, at 5:07 PM, chris100000 wrote:

    @TimKnows,

    Are you serious? Not only does everybody want an Apple, but in my experience the PC users who switch to Apple don't switch back. Apple is integrating itself into the fabric of our beings and releasing smaller/faster products. There are products in the pipeline too that will raise Apples profit. The above mentioned global market (China/India) are going to add significantly to the bottom line of Apple. You can have RIM.

  • Report this Comment On January 07, 2013, at 7:28 PM, MrSmith210 wrote:

    Lol RIM. NOK!? Ha. Take a peak at that NOK 2 year chart vs. AAPL. Sure, NOK is finally up for a qtr from the Q4 2012 and Apple isn't. But let's look at the bigger picture fellas.

    Tim.. you need to change your name because "TimKnows" isn't true. lol.. terrible statement.

    "Very poor investment for 2013." Ha. It pulls back for ONE QUARTER at the end of 2012, meanwhile STILL up 30%+ for the year in 2012.. but yet now it's a "poor investment" for 2013? Lol.

    Going to move 50 million phones in the holiday quarter.. moving tens of millions of iPads.. selling BILLIONS of apps.. but it doesn't offer anything to consumers? Lol. Ask anyone that owns ONE Apple product if they plan to buy another one of ANY sort.

    Wake up Tim. You're believing the Anti-Apple story WAY too deeply. Come back here on Jan 25th after the earnings call and we'll see if you still feel the same.

    Don't let the media and big money funds scare you off. Don't be fooled into thinking they don't want to enjoy the same returns on AAPL again in 2013 that they got to all of last year! Apple will be back. Stocks don't go down forever.. just as they don't go up forever. The pain is in. The correction has happened. It's down to freakin' single digit multiple against trailing earnings! Insanity. Time to get in ahead of it's greatest quarter ever. The holiday quarter on a release of a new phone AND new tablet!? You don't think they sold TENS OF MILLIONS OF UNITS?! Ask your local Best Buy or AT&T or Verizon store what their number one selling phone has been over the holidays. I don't care what city or state you're in. Make ONE call to any of those stores and ask. $20 says it's iPhone 5. I've asked all through San Antonio everywhere I go. I see analysts talking about the checks their teams do on a daily and weekly basis.. everything points Apple. Don't be fooled, fool!

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