Look Out Tesla, Apple’s On Your Six!
I’ve got a confession to make… I’m a horrible dad.
You see, this week, I sent my 13-year old daughter to school without her iPhone.
I know, I know. That’s considered cruel and unusual punishment these days.
But when it was time to get in the car for school, Rebekah was checking her Instagram feed instead of getting ready to go. So I took her phone for the day.
According to Rebekah, that’s a big problem for a middle-schooler. “How am I supposed to communicate with my friends?!” (Heaven forbid she actually talks to them in person.)
As you can probably tell from my sarcasm, I think Rebekah’s perspective is a little off when it comes to her iPhone. Similarly, I think Apple’s investors also have a skewed perspective when it comes to the new iPhone models and the company’s long-term direction.
Fortunately, that skewed perspective sets up a great opportunity for income investors…
Apple’s Multi-Generational Iconic Brand
Shares of Apple moved lower after the company unveiled its newest models of the iPhone.
Apple’s iPhone 8 — along with the 10-year anniversary model “X” (pronounced “iPhone ten”) failed to inspire investors. Essentially, there weren’t enough surprise features for customers to get excited about.
I’m not sure I disagree with them…
You won’t find me standing in line to pay $1,000 for the newest iPhone. Honestly, the iPhone 5 or 6 has all the features I could ever really want in a phone. My kids have older models of the iPhone and they work perfectly fine for keeping in touch with each other and snapping pictures of little brother snuggling with the kittens.
But just because Apple got a cold reception to its latest products doesn’t mean the company is in trouble. Far from it!
You see, Apple will still sell plenty of its newest phones — and rack up billions in cash from these sales — for two reasons.
One: The iPhone is still a status symbol for young and old alike.
A recent survey from investment research firm Piper Jaffray found that 82% of U.S. teenagers expect their next phone be an iPhone. This was the highest percentage recorded since the company started its semi-annual survey.1
Older adults are not much different, with 79% stating that they want the latest edition of the iPhone.
Despite the lackluster reviews on Apple’s latest models, the newest iPhone is still one of the hottest status symbols in our ever-more materialistic society.
The second reason is that blue chip companies will still keep their employees outfitted with the latest technology.
My little brother works for one of the big four accounting firms. This week, I dropped by his house to watch some Monday Night Football, and found him showing off his new piece of hardware. It seems his firm has already issued the iPhone 8 to all its staff accountants.
As long as Apple remains the standard for consumer technology, you can bet that corporate America will continue to issue its products to employees. This is just one of the ways companies are vying for qualified employees — a resource that is growing more scarce by the day!
Apple’s “Next Big Thing”
If you’re an investor in Apple, you now find yourself in an enviable position of either having a “good” investment today, or possibly a “great” investment in the near future.
That’s because today, Apple is pulling in cash by the truckload thanks to its existing suite of products. At last count, Apple was sitting on $261.5 billion in cash, much of it will likely be freed up to pay to investors once congress passes a new tax plan.2
Apple’s cash balance grew by 13% year over year during the second quarter. And that rate of growth should accelerate in the third and fourth quarters of this year thanks to new sales of the iPhone 8 and iPhone X.
So just with today’s business the way it is, Apple is a “good” opportunity for income investors. (And that’s putting it modestly).
But what happens when Apple launches its “next big thing?”
And more importantly, what will that “next big thing” be??
I can tell you that Apple’s CEO Tim Cook isn’t content to sit back and sell iPhones until consumer tastes change. No, he’s got much bigger plans ahead.
In fact, Tim Cook has gone on the record stating that his company is focusing on autonomous systems… Which sounds a like self-driving cars and other equipment to me.
Think about the possibilities!
This summer, our own Davis Ruzicka wrote an intriguing article about what could happen if Apple bought Ford Motor (NYSE:F).
It’s not as farfetched as it might sound!
Can you imagine the buzz around the iCar or iTruck launch? Not to mention the cash that Apple will generate from blockbuster sales of the ultimate vehicle status symbol.
(Look out Tesla!)
Now I’m not suggesting you invest in Apple just because the company might step into the auto market. That’s a possibility but not something I would bet on.
But I do think the stock is an excellent investment right now, thanks to the company’s huge cash balance and reliable, growing dividend.
Just with its standard international business today, Apple is a solid investment. (And you’re getting a nice discount to buy shares thanks to the pullback following the release of the iPhone 8 and iPhone X.)
Looking forward, Apple could be a great investment if it comes out with a new blockbuster product that people want. And if and when that happens, shares will move sharply higher while Apple’s dividend grows at the same time.
So if you’re not already invested in AAPL, consider adding some shares to your retirement account today. At the very least, you’ll own a steady income generating investment. But I expect much more than that from Apple over the next few years.
Here’s to growing and protecting your wealth!