Apple Inc. (Nasdaq: AAPL) just reported the biggest quarterly profit ever for a public company – $18 billion in net income over the last three months of 2014. And CEO Tim Cook says his company made a “staggering” number of iPhone sales during that time – 74.5 million.
And already a lot of folks in the media and on Wall Street are asking this question: What’s next?
For once, that’s exactly the right question to ask.
After all, stocks are “discounting” mechanisms, meaning their valuations are based on expectations of the future.
But instead of looking at the picture clearly, the media is making Apple shareholders worry that smartphones have reached their peak – and Wall Street seems to think the company has become too dependent on iPhone sales.
First of all, neither of those worries is based in fact. Second, beyond iPhones, Apple has in place several catalysts for continued strong growth.
And so, Apple stock is still on target to make my prediction come true – $1,000 per share ($142.85, post-split) by Labor Day 2016.
Today, I’m going to show you the three reasons why Apple is still on target.
Best Quarter Ever Is Just a Start
Not to boast – well maybe just a little – but I have been a consistent bull on Apple for some time now.
After all, I made that $1,000 share-price prediction 15 months ago, back when most analysts were doubtful of CEO Cook’s potential and bearish on his company.
But these incredible quarterly earnings prove what I’ve been saying all along – this is a tremendously large company that still has a lot of upside.
In fiscal 2015’s first quarter, Apple’s earnings per share (EPS) soared some 48% to $3.06, a record amount. And those 74.4 million iPhones were a 46% increase from the year-ago period.
At this point, Apple’s smartphones could soon gain global dominance over Samsung Electronics Co. Ltd. (OTC: SSNLF). That’s significant because the South Korean company became the world leader in smartphone sales back in 2011.
But in the quarter ended Dec. 27, Samsung sold roughly the same number of phones as Apple. All of which has many on Wall Street suggesting that Apple is now too dependent on iPhone sales.
Yes, smartphones accounted for nearly 70% of revenue. But remember Rule No. 2 of my five-part tech investing system, which says to “Separate the signal from the noise.”
All that “concern” from the media and Wall Street is “noise.”
Here’s the “signal”: Apple will continue to grow beyond iPhone sales thanks to catalysts in at least three sectors. Let’s take a look:
Apple Catalyst No. 1: Emerging Markets
Consider that iPhone sales in China doubled in the quarter to roughly 14 million.
The iPhone retails for nearly double what competing Chinese smartphone-makers charge. So this is an amazing accomplishment that underscores the quality of Apple’s product and its sales channel.
More to the point, Apple’s success in China is part of a much larger paradigm – growth in emerging markets all over the globe. There are still plenty of countries where smartphones are new products and where markets are still moving from 2G wireless to the higher standards of 4G.
During the quarter, Apple’s sales in Brazil, Russia, India and China – the so-called “BRIC” – skyrocketed by 97%. Cook says sales growth in those regions was three to four times what industry data tracker IDC had forecast.
So, even if U.S. smartphone sales reach saturation, Apple has its eyes on the rest of the world. Remember, more than 80% of the world’s population lives outside North America and Western Europe.
Apple Catalyst No. 2: Mobile Pay
It’s hard to believe the Cupertino, Calif.-based company only entered the $35 billion market for mobile payments just four months ago.
Well, maybe it isn’t so hard to believe. After all, Apple is a Silicon Valley legend – the current gold standard of tech companies.
Apple Pay works at more than 220,000 stores that have installed a wireless checkout terminal. Anecdotal evidence suggests it’s a hit.
Earlier this week, The Wall Street Journal cited the example of a Utah supermarket where the manager says roughly 30% of all shoppers are using the service.
And this brings up another key fact about the iPhone. It’s not just a smart device – it’s part of an ecosystem in which Apple’s family of products all work together nearly seamlessly.
Apple Pay works not only with the iPhone but also with the company’s next breakout product…
Apple Catalyst No. 3: Wearable Tech
Now scheduled to debut in April, the Apple Watch will shake up the burgeoning world of wearable technology, a market that’s already growing by 75% a year.
I’m not the only one who thinks so.
Morgan Stanley (NYSE: MS) says Apple could sell between 30 million and 60 million units in the first year alone. That implies revenue of more than $10 billion.
Meantime, Gartner expects that by 2016 around 40% of wrist-worn consumer devices will be smart watches. The forecaster projects that just two years later, wearable sales will reach 111.9 million units — with much of this growth fueled by the Apple Watch.
And Juniper Research thinks global retail sales of wearables will total $53.2 billion by 2019.
No wonder companies like ESPN, American Airlines Group Inc. (Nasdaq: AAL) and Instagram are busy working on apps for the Apple Watch.
With these three catalysts – and more that are still in the percolating stage, like its HomeKit smart-home products – you can see why I remain so bullish about Apple.
Since I first predicted on Oct. 30, 2013, that AAPL would hit a split-adjusted price of $142.85, the stock has rallied for gains of more than 58%. Compare that to the Standard & Poor’s 500 Index‘s gains of 14%.
And I believe the stock still has a lot of momentum ahead. With my target price in mind, that means additional gains of nearly 21% by Labor Day 2016 – even if you buy in today.
But at the rate Apple is now growing, it’s starting to look like my original prediction might have been a bit too conservative.
- Strategic Tech Investor: Here’s How You Can Still Make 27% With Apple Even if You Buy Now.
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- Strategic Tech Investor: Here’s the Secret Winner of the Apple-Google Mobile Payments War.
- Strategic Tech Investor: We’re Still in Apple “for the Long Haul.”
- Strategic Tech Investor: This May Be Your “Last, Best” Chance to Buy Apple at a Bargain.