Love it or hate it, Apple (NASDAQ:AAPL) is the new hipster in town. With innovative products and slick designs, everyone is rushing to play catch-up with this company. But is Apple set to emerge as the best blue-chip investment for 2007? You bet your Granny Smiths it is.
Hello, I'm a Mac
In the blue-chip world, Apple is the new kid on the block. Sure, it's been around for a few decades, but next to other first-class companies, it's a newbie. This relative newness actually works to Apple's advantage, since it provides the stability of a blue-chip stock with an element of growth thrown in. In the past few years (specifically, the post-Steve-Jobs-returns era, beginning circa September 1997), the company has become a mainstay in the technology realm. It has not only become profitable once again, but also boasts a market cap of $68 billion. That's enough to secure the company a spot at the blue-chip table.
But the real reason behind Apple's blue-chip status is its potential. In the span of a few years, Apple's brand, strategy, and products have been reinvented dramatically, and it shows on the company financials. From a product standpoint, since 1998, Apple has unleashed several versions of the iMac and MacBook, several iPods (the traditional iPod, the Nano, and the video iPod), and iTunes. Music products actually drive more than 50% of Apple's revenue. How does that translate? If we look at the past five years, we can see the tremendous growth that Apple is harnessing.
|
FY 2002 |
FY 2003 |
FY 2004 |
FY 2005 |
FY 2006 | |
|---|---|---|---|---|---|
|
Revenue Growth Over Prior Year |
7.1% |
8.1% |
33.4% |
68.3% |
38.6% |
|
Gross Margin |
27.9% |
27.5% |
27.3% |
29.0% |
29.1% |
|
Operating Margin |
.8% |
.4% |
4.2% |
11.8% |
13.5% |
|
Net Margin |
1.1% |
1.1% |
3.3% |
9.6% |
10.3% |
But it's not just about margins. It's also about the competition. I think there's no argument that Apple is the dominating force in the digital-music world with iTunes and the iPod. And Apple is also gaining market share in the U.S. PC market. According to Gartner research for Q3 (which falls under Apple's Q4), Apple grew 31% year over year, leaving the other main competitors in the dust, while the PC market shrank 2%.
2006 Q3 Market Share (%) | 2005 Q3 Market Share (%) | Change in Market Share (%) | |
|---|---|---|---|
Dell (NASDAQ:DELL) | 32.1% | 33.9% | (7.1%) |
Hewlett-Packard (NYSE:HPQ) | 23.0% | 21.2% | 6.3% |
Gateway (NYSE:GTW) | 6.4% | 6.3% | (1.1%) |
Apple | 6.1% | 4.6% | 31.0% |
Toshiba | 5.1% | 4.1% | 22.3% |
Combine that with the compatibility of Microsoft (NASDAQ:MSFT) Windows on Apple computers, and I'd expect that market-share percentage to climb higher.
And the Golden Delicious doesn't stop there. Having sold 39 million iPods and 5.3 million Macs during this past fiscal year, Apple is content with its positioning. It's confident that it will continue to make strides in the digital-music and hardware worlds in 2007. And with the release of the second-generation Shuffle -- currently the world's smallest digital-music player -- and the second-generation Nanos, Apple will begin its 2007 fiscal year strong, thanks to holiday sales. (Stocking stuffers, anyone?)
Are you a Mac or a PC?
Apple is not a traditional blue-chip stock. It's a company that's capitalizing on current technology trends and consumer needs -- mainly digital music and computers. Rumors are brewing of an iPod phone and online movie rentals. The possibilities are never-ending -- kind of like those Mac/PC commercials. Yes, Apple is a newcomer, but it's one that has proved it has staying power, with more than five years of stable and dependable growth behind it. Apple could quite possibly be the easiest money you'll ever make -- it has returned more than 600% over the past three years alone!
There you have it. Is Apple going to be the best blue-chip investment of 2007? How does it stack up against the likes of Microsoft, Johnson & Johnson, and Wal-Mart? Put in your two cents at our brand new Motley Fool CAPS community-intelligence database. You can rate Apple to outperform or underperform against the S&P 500. You get to make the call, share insight, and read what others think. So far, we have 629 thoughts on Apple from the community. The last time I checked, 2,252 people have given Apple a ranking. Of those ratings, 1,917 are Apple-friendly, and 309 of those are from CAPS all-stars.
Based on your thoughts and votes, we'll declare the best blue chip of 2007 early next week. So while the election may be over, we're still taking votes here at the Fool! As voiced by CAPS community member heygirly, "forget Stacie's mom, Apple has got it goin' on!" Click here to sign up for the free service.
To read about the rest of our blue-chip candidates, click here.
Johnson & Johnson is aMotley Fool Income Investorrecommendation. Wal-Mart and Microsoft areMotley Fool Inside Valuepicks. Dell is an Inside Value andStock Advisorpick. Try out these or any of our newsletter services free for 30 days.
Katrina Chan owns no shares in any companies mentioned above but is thrilled with her new iPod Shuffle. She also promises to limit the usage of apple terms in the future. The Motley Fool has a disclosure policy that's truly head-bopping-worthy.
