'Never catch a falling knife' is an oft-quoted investing saying: a share that falls can continue falling further and faster than you ever imagined, so watch your fingers! Okay, that's understood, but should you ever catch a falling Apple (NASDAQ: AAPL.US)?
At the beginning of the year, just before the announcement of its latest results, I tipped Apple as one of my best buys of the year. I felt it was a good contrarian buy -- once the go-go stock of the moment, the mounting negative publicity around the company had caused a major sell-off.
A little perspective
A few days later the company's latest results came out, causing the share price to slump 10%. The share price fall was so rapid that it left me rather stunned and wondering: was I wrong about Apple all along?
Well, let's put this into some kind of perspective. Although Apple's results were mildly disappointing, it was still a good quarter for the tech giant. The company is selling more iPhones and iPads than ever before. And I suspect sales, particularly of tablet computers, will go from strength to strength over the next few years.
The investment case still rings true
Already, one in six computers sold today is an iPad. Yet big business is yet to really adopt the iPad. Once companies start buying tablet computers instead of laptops and desktops, you can expect Apple profits to be given another boost. And, of course, there is the emerging market story. And Apple TV...
The crux of my investment case: that we are still at the early stages of a long-term trend away from PCs and laptops to smartphones and tablets, still rings true.
But one thing I did underestimate was the surge in sales of Apple's arch rival: Samsung. While Apple has gone for margin and quality, Samsung has gone for volume. The result is that Samsung sells more smartphones than any other company on the planet but, crucially, Apple still makes more profit.
Samsung's success is putting pressure on Apple's margins, and it is also trying to out-innovate the boys from Cupertino. How can Apple possibly compete? In my view, there is no easy answer: it just has to keep trying, and keep innovating.
But Apple is more than just a technology company. Out of a unique blend of creativity, design and simplicity, Steve Jobs has fashioned a global brand that is, still, second to none. For this reason, in my mind, Apple remains a buy.
Apple has been an astonishing growth story over the past decade. It is a prime example of how a rapidly growing company can be rocket fuel for your portfolio.
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