How Much is Too Much?

“I like it, but it’s just too expensive.”  I’ve heard that phrase often this summer, almost exclusively when discussing Apple’s stock price.  When it comes to investing, many of us get too enamored with the number of shares that we own, instead of the total dollar value of our investment.

Think of it like this.  How is a $10,000 investment that gives you 200 shares any different than a $10,000 investment that buys you 20 shares?

In late July Apple encountered a rare miss on earnings due to lagging sales of the iPhone 4s (because everybody and their uncle knew that the iPhone5 was due this fall).  Correspondingly, its stock price dropped from a high of $609 on July 24 to a low of $570 the next day.

Now, hindsight is always 20/20, but stay with me for a moment.  If you’d invested $10,000 in Apple after the share price dropped, you’d have received approximately 17 shares of the company’s stock.

Over the next week, Apple’s share price would pass the $600 mark, and on August 17^th, Apple reached its all-time high.  It would go on to eclipse that new high eight times over the course of the next month, including Monday, September 17^th when the share price passed the $700 mark.

Today those 17 shares would be worth around $12,225 – a 23% gain in a little over a month’s time (and don’t forget Apple also paid its first quarterly dividend on August 9^th).  Now I will ask the question:  was Apple really too expensive?

Chuck Wade

(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp.  The author’s opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).

Understanding Apple

When Apple started selling the first iPhone in June 2007,  you could buy Apple stock for about $100 per share. Two weeks ago, You’d pay $644 for that same share. During that same time, $100 invested in an S&P 500 mutual fund would be worth about $95.

Yet Apple naysayers abound, calling the stock overpriced; saying the iPhone is threatened by Droids, or the iPad by cheaper competitors. How does Apple answer? With last night’s earnings report, to wit:

Sales up 50%.
Profits nearly doubled.
iPhone sales up 88%.
iPad sales up more than 100%.

Investors have sent Apple stock up $50/share (9%) this morning on that news.

It took me a while to understand Apple and its products, despite buying the first iPhone and nearly every subsequent model, and becoming inseparable from them.  I really looked at iPhones as a great phone that could do some other things – and that’s where I was wrong. The iPhone and iPad are devices that provide such a range of function that it can hardly be imagined that any two people use them the same way. That coupled with high quality and reliability suggest that continued strong sales are likely for Apple.

The next wave: when iPads start to surpass big-box televisions for TV viewing. It may be coming.

GTC

(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp.  The author’s opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).