Don’t Buy the Fear on AAPL Stock
After a year of sliding stock prices, Apple Inc. (NASDAQ:AAPL) is finally getting some affection from investors. However, I should warn you that the rally on AAPL stock may be short-lived.
I’m not saying the company’s shares are a fair buy below $100.00—far from it. I genuinely believe Apple’s stock should be at least $150.00, but my reasons are vastly different from those of the broader market.
After all, it was the broader market that decimated Apple’s share price over the last six months. Too many analysts warned that a slowdown in China would blow a hole in “iPhone” sales, undercutting the company’s growth trajectory.
The fear-based sell-off cost Apple nearly 18% of its market value.
Those worries were accentuated by Apple’s growing dependency on iPhone sales. Rather than finding new revenue streams, the company’s bottom line was growing increasingly reliant on its smartphones. Understandably, this made investors pretty nervous.
But the logic they weaved had a loose thread that, when tugged at, unravels the whole thing.
R&D Spending Could Push Apple Stock Higher
Smart investing (the kind that earns huge profits) is all about predicting, about looking forward. Anyone can look at a company that’s making more cash from new products and think it’s a good buy. But by that time, the price will already reflect the new revenue.
That’s the loose strand. If Apple was trying to diversify its revenue stream, wouldn’t that take investment, innovation, and time? It most certainly would. We should be trying to spot this stuff before it ever makes it to the bottom line.
We should be looking at leading indicators of innovation like R&D and strategic hires.
Personally, I couldn’t care less about Apple’s profits from this quarter. I don’t care whether the company meets expectations or not, because all those perception issues are temporary.
I’ve been watching Apple very closely and I can tell you that there are tectonic shifts taking place underneath the surface. The culture of innovation is very much alive.
The company increased its R&D spending by more than 80% in the last two years, which is a significant chunk of cash. (Source: “Apple Inc. Form 10-K Filing,” Securities & Exchange Commission web site, September 26, 2015.)
At the same time, Apple has been hiring experts in artificial intelligence and transportation, cementing rumors that the firm is building a self-driving car. (Source: “Documents confirm Apple is building self-driving car,” The Guardian, August 14, 2015.)
The company also bought Beats Electronics and its music streaming service, “Beats Music,” and turned it into the fastest-growing streaming service of its kind. At the time, everyone thought $2.0 billion was an excessively large price tag, but with 10 million subscribers after only six months of operating, “Apple Music” is shaping up to be a game-changer for the company.
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Trust in Apple’s Commitment to Innovate
So, ignore the spate of articles you’ll see over the next few days concerning the future of AAPL stock. There will be bears holding up the earnings statement as proof of Apple’s failure. There will be bulls saying the exact opposite, while waving the exact same earnings statement.
Ignore all of that. Trust in the one thing every technology firm needs to stay competitive: innovation. It’s the sharp end of the sword, the only thing that cuts through the garbage of a 24-hour news cycle, and Apple has it.