Streetwise

Lauren Rudd

Sunday, August 14, 2011

The Apple Of My Eye

No, I am not going to regurgitate this week’s events on Wall Street. The din of naysayers and prognosticators has been deafening. I will however take the position that a contagion of economic and financial hysteria is flourishing. In over four decades of working with the Street, I cannot recall such seemingly endless volatility and that includes October, 1987, a time that resulted in the birth of Streetwise.

The economic precipice we have faced for the past three years, and continue to face, is indisputable. Without the unprecedented actions orchestrated by the Federal Reserve the Great Depression of 1929 would be relegated to tea party status, no pun intended.

The current administration did not invent the budget deficit or the national debt. And while increasing both was distasteful, no other course of action was or is feasible, unless of course you have a penchant for bread lines and people with tin cups selling pencils on street corners.

Tragically, many seem to think there is no logical justification for the elderly to spend their days idly enjoying their golden years when they could be spending them working at the Golden Arches, or greeting customers at Wal-Mart and thereby reduce the Federal government’s burden.

One method of self-defense of course is to improve your self-reliance. To that end let me offer up an investment idea that could potentially affect your financial well-being in a positive way.

A company that I have the highest respect for, and an ideal prospect in a market pullback, is Apple. In fact, Apple briefly edged past Exxon Mobil during the recent market turmoil to become the nation’s most valuable company, displacing an old stalwart and heralding the supremacy of an era where technology holds sway.

In doing so, Apple’s market capitalization (shares outstanding multiplied by the price per share) was $341.5 billion, just ahead of Exxon's $341.4 billion, even though Exxon's annual revenue is four times that of Apple's.

Although Apple soon slipped back to being number two, it is simply a matter of time before the company that brought us the iPod, iPhone and iPad ascends to the top.

Apple’s seemingly unending strength is due in no small part to its deft handling of overseas supply and production, as well as an unerring perception of consumer tastes. Since July 1, Apple's market capitalization increased by more than $20 billion, fueled by optimism that a new version of the iPhone will lead to a monstrous second half of the year.

Yes, there is on-going concern regarding CEO Steve Jobs' ailing health and fear the company will not be the same without its hard-driving, visionary leader. The company’s bench of capable management should put those concerns to rest. As to competition, such as the rising popularity of Google-powered smartphones, Apple has showed it is more than capable of staying one step ahead.

In its recent fiscal third quarter earnings announcement ended June 25, the company indicated quarterly revenues of $28.57 billion and record net earnings of $7.31 billion or $7.79 per share, as compared to revenues of $15.70 billion and earnings of $3.25 billion or $3.51 per share for the same period a year-ago. The company also posted a gross margin of 41.7 percent, as compared to 39.1 percent a year-ago. International sales accounted for 62 percent of the quarter’s revenue.

More specifically, Apple sold 20.34 million iPhones during the quarter, representing a 142 percent increase over the same period a year ago. It also sold 9.25 million iPads representing a 183 percent increase and 3.95 million Macs, a 14 percent increase. Only iPod sales appeared to be falling as sales of 7.54 million units represented a 20 percent decline from a year ago.