Should you buy Apple before the iPad launches?

iPad 3"Apple (NAS: AAPL) will become the most valuable company in the world. Bet on it. In fact, go out and sell all your personal belongings, liquidate your 401(k), and buy Apple stock with every last dollar you own."

That was the intro to an article I wrote on Sept. 12, 2010 on the inevitability that Apple would become the most valuable company in the world; Apple has risen 107% since then and recently did secure its place as the world's most valuable company. While the intro was a bit sensationalistic -- on purpose -- the message of the article was clear: Go and buy Apple. And less than a week later, I followed it up by issuing a buy recommendation. Later, I bought Apple for my real-money portfolio on fool.com. In that buy recommendation I called it "my top conviction selection to outperform the market in 2011."

All this to say, I've been a huge Apple bull the past year and a half, and I'm hardly alone in my opinion. Wall Street has nearly unanimous buy recommendations on the company. But so much changes when a company sees huge gains the way Apple has across the past year. During its torrid 2012 run alone, the company has already notched a 35% gain in just two months.
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The $500 billion question has become whether Apple shares have any fuel left in the tank. Today we'll examine not only what the iPad means for Apple ahead of the iPad 3 unveiling this Wednesday, but also whether the company is still a buy.

The incredible iPad mania
It might be stunning to investors who witnessed iPod and iPhone mania, but it's the iPad that has claimed the title of Apple's fastest-selling product in history. As of last quarter, it'd already moved 55 million units, far outpacing other iconic Apple products.

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Source: Tim Cook at Goldman Sachs Technology Conference.

The iPad contributes about 20% of Apple's revenue today, second only to the iPhone. It's a central force in pushing Apple into American business, with nearly every Fortune 500 company deploying the iPad in some form. By 2013, Forrester Research estimates that about 17% of all global business and government PC spending will be on iPads. Any way you slice it, the iPad is an essential component of Apple's meteoric rise.

The iPad 3 unveiling: Its tablet dominance will continue
The iPad 3 will continue Apple's dominance of the tablet space. Expected features include:

  • Retina Display: Like the iPhone 4 and 4S, the iPad will have a display that significantly reduces any pixilation. Put simply: a much sharper, clearer display.
  • 4G connectivity: So far, Apple has eschewed next-generation LTE capability because the technology was new and basebands from supplier Qualcomm would consume too much power. However, with years of research and improvements to LTE chips, it appears Apple is ready to commit to LTE and the hire data speeds it provides.
  • Hardware and Siri: The iPad will come with a new processor. No matter the number of eventual processor cores -- there's still quite a bit of debate whether it'll have two or four -- the processor should offer a sizeable performance upgrade. Along with the hardware upgrade could come support for Siri -- and the unfortunate side effect of another year of annoying "Rock God" commercials following it.
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Should you buy Apple before the iPad launches?

Apple I (1976): Apple's first product was a computer for hobbyists and engineers, made in small numbers. Wozniak, left, designed it and Jobs dealt with the funding and marketing. The computer went on sale priced at $666.66

Apple II (1977): One of the first successful personal computers, the Apple II was designed as a mass-market product, retailing at $1,298, and was the first personal computer to feature colour graphics. Several upgrades for the model followed, and the product line continued until 1993. It was so popular that Jobs' fortune exceeded $100 million by the time he turned 25.

Lisa (1983): Following a visit to Xerox's research centre in Palo Alto, California, Jobs was inspired to build the first commercial computer with a graphical user interface, with icons, windows and a cursor controlled by a mouse. It was the foundation for today's computer interfaces, but the Lisa, which cost a whopping $9,995, was too expensive to be a commercial success.

Macintosh (1984): The Macintosh was heralded by an epic advert shown during the Super Bowl, directed by Ridley Scott, which referenced George Orwell's 1984. Like the Lisa, the Mac had a graphical user interface, but it was faster and at $2,495, a quarter of the price. People soon realised its potential for desktop publishing.

iMac G3 (1998): In 1985, Jobs and Apple's CEO, John Sculley clashed, leading to his and Wozniak's resignation from the company. When Jobs returned to Apple 11 years later, Apple was struggling. The radical iMac was the first step towards healing the ailing company. It was strikingly designed as a bubble of blue plastic that enclosed the monitor and computer. It went on sale priced at $1,299.

iPod (2001): In 2001, the game well and truly changed when the first iPods went on sale. The first generation of iPod cost $499 (£400), but as Apple updated and modified the winning formula, prices came down. Of course, it wasn't the first digital music player with a hard drive, but it was the first successful one. The iPod's success prepared the way for the iTunes music store and the iPhone.

iTunes (2001): Apple also introduced iTunes in 2001 - a media-playing computer programme, useful for playing and organising music and videos. The music store was added in 2003, with 200,000 songs at 99 cents, or 79p, each, giving people a convenient way to buy music legally online. iTunes is now an integral part of Apple software: the iPhone cannot be used without first 'synching' with the owner's personal iTunes.

iPhone (2007): If the iPod laid the foundations, then the touch-screen iPhone is Apple's towering glory. The world was introduced to 'apps', which made the phone a device not just for making calls but for managing money, storing photos, playing games and browsing the web. Apple is now the world's most profitable maker of phones, and the influence of the iPhone is evident in all smartphones. The current model, the iPhone 4, sells for $749 (£612), and the arrival of the iPhone 5 is eagerly anticipated.

iPad (2010): Dozens of companies, including Apple, had created tablet computers before the iPad, but none caught on. The iPad finally cracked the code, creating a whole new category of computer practically by itself. In the case of the iPad, Jobs, famed for identifying and creating the next big thing, seems to have created a market where none existed. The highest spec iPad currently retails at $699 (£659).

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Critics will point out that competitors already have implemented many of these features, but that doesn't matter. Apple has been soundly trouncing higher-priced tablet offerings based on Google's (NAS: GOOG) Android. However, this major hardware upgrade does further push Apple's advantage over where it has proved more vulnerable: the low-end price points in tablets. Having all these features further distinguishes Apple from low-priced competitors such as Amazon.com's Kindle Fire.

Put it all together, and the newest iPad not only offers a larger hardware upgrade than the iPad 2 -- enticing existing iPad users to upgrade -- but it also pushes Apple's premium tablet perception. Not only that, but Apple could also follow a strategy much as it has in phones, by selling the older iPad model at a more discounted price. Although this approach wouldn't be able to fully close the pricing gap with the Kindle Fire, the iPad 2 could conceivably continue in production at a reduced $399 (or lower) price point.

I just gotta talk about the iPhone
Although I've focused here on the iPad ahead of its unveiling this Wednesday, the question of whether to buy Apple veers back toward the iPhone.

It's quite simple: While most consumers pay only $200 to $300 for their iPhones -- which is roughly half the cost of an iPad -- the heavily subsidized nature of the mobile industry means Apple actually collects more revenue on each iPhone sold (roughly $660 per phone) than on iPads ($590). This despite the fact that iPhone costs are generally regarded to be in a range where the average phone has about $200 worth of "guts" inside. Compare that with the iPad, where the iPad 2 was closer to $300 in components in each unit. Because of the economics of the wireless industry, the iPhone sells for more and costs quite a bit less to make.

Secondly, while the iPad is Apple's fastest-growing product ever, that's largely because Apple was very careful about building out the iPhone's carrier partnerships and was less aggressive about its pricing during its first few years on the market. Now that the iPhone has opened up to more carriers and is taking advantage of the global demand for smartphones, its sales have skyrocketed.

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Tablets are a key area of growth for Apple and remain a near monopoly for the company, but the smartphone market is just staggering. We're still on target for a billion smartphones shipped in 2015. It wouldn't surprise me if tablets and PCs put together were roughly only about 60% of smartphone shipments in that time. And with the iPhone costing the same as the average PC and more than the average tablet sold, well ... you get the picture.

Enough, already! Is Apple still a buy?
Put it all together and yes, I still think Apple's a buy. It can be nauseating to buy a company at its all-time high, one that's been running up for weeks, and one attaining an unprecedented size for technology companies. However, it's worth noting the majority of times buying Apple in the last decade required buying it near all-time highs while it had seen strong gains across the past year. Wall Street is constantly catching up with the realities of the opportunity in front of Apple.

I outlined in a previous article why I believe Apple is still a buy north of $500, and it really hits on three main opportunities for the company. Combined, I believe these opportunities will push Apple ahead of already lofty expectations across the next two years.

  1. Emerging-market growth: Apple has pushed hard into China, and its efforts are bearing 50-pound fruit. China accounted for 16% of Apple's sales just a few quarters ago. With the iPhone not having launched in China last quarter, its momentum in that country should push Apple to another blowout quarter when it next releases earnings. However, China is just one (very large) component of the emerging-market opportunity. Apple focused on the country first but is now expanding out to markets such as Brazil, Russia, India, and Indonesia. All those markets have relatively large amounts of consumers with enough discretionary cash to buy Apple products and present an added opportunity across the next two years.
  2. Business spending: The iPhone has been on the vanguard of an idea called the "consumerization of IT," but the iPad and Mac are now pulling their weight in businesses as well. Rather than having IT departments dictate what their employees use, they're now opening up. Essentially every major company is testing iPad use across their organization. Business spending growth in Macs and iPads alone could account for 25% of the growth projected for Apple in the next two years.
  3. Apple TV: While Apple is expected to also unveil a new Apple TV box this Wednesday, the larger opportunity will be its own television set, which is likely to hit in 2013. This is an opportunity to once again leverage the iOS ecosystem and could disrupt several industries in the process.

So there you have it: Three reasons for Apple to keep up its momentum in front of the iPad's unveiling this Wednesday.

One more idea for the road
One final point I'd like to make is that while I've purchased Apple in the portfolio I manage on fool.com, my greatest winner has actually been one of the components inside Apple products. If you're looking for a way to play Apple, you shouldn't limit yourself to just buying the company.

This article originally appeared on Dailyfinance.com.

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