Why Should You invest in Apple Stock - Term Paper Example

Why Should You invest in Apple Stock? Introduction Even though share market has faced some problems in the recent times because of recession, investment experts are of the view that the future of share market is bright. Many prominent share markets all over the world already started to show the signs of a revival. In other words, the climate for investments in share market is encouraging now and those who invest wisely may get attractive returns in future. Background According to Chronicle Staff Writer, Kim (2010), Apple, the innovative challenger to dominant Microsoft and second most valuable company in the United States after Exxon Mobil, has passed its rival in market capitalization, becoming the most valued technology company in the world (Kim). Apple Company needs no introduction in the industrial world now. Surpassing of Microsoft in market capitalization is not an easy task and it reflects the capabilities of Apple Company in the international market. Even though earlier Apple concentrated more on the computer and operating system market, they have already started to enter the consumer electronic market world by diversifying their portfolios with the help of ipods, iphones, mobile phones and different kinds of portable electronic devices. In share market also the growth of Apple is more visible and evident. Even when some of the major companies struggled to survive because of recession, Apple stood out among them and escaped without much damage because of their superior range of products. Problem Investments is stock are one of the most popular way of making money. But the recent recession resulted in many people losing their money because of the destruction of the share value. Now people are approaching the stock market with hesitancy. Purpose The purpose of this report is to persuade investors to consider Apple stock as a major choice while they invest in share market. Even when the recession affected many of the big companies Apple stocks and the company remained unaffected. Investors can therefore select Apple stocks as their investment option without much concerns or worries. Scope The scope of this report is limited to a discussion on Apple Company, its stock value, present and future growth prospects, comparison of Apple with some of the competitors etc. Moreover, many of the people may not notice that Apple has already crossed even Microsoft in its market capitalization. This report aimed to make the investors aware of the strengths of Apple stock as an investment option. Discussion Apple's market capitalization - the sum of its outstanding shares multiplied by its stock price - finished at $222.07 billion, ahead of Microsoft's at $219.18 billion Wednesday, May 26, 2010 (Kim). (Warren) It is a fact that Microsoft has more international units than Apple. Moreover, Microsoft enjoys absolute monopoly in the operating system market all over the world. Even then Apple was able to surpass Microsoft in terms of their market capitalization which is definitely a remarkable achievement. One of the major strengths of Apple over Microsoft is their product diversification. Microsoft is mainly focusing on the OS market whereas Apple was able to develop more diverse portfolios like computers, OS, ipods, Mobile phones etc. In short, Apple may not face much problems in future in sustaining their business in a stable level because of their diverse product range. Even if one product fails in the market Apple would be able to counter it using another product. Apple was one of the fewest companies in America which remained not much affected even when the recession struck America severely in 2008. Krazit (2008) has mentioned that the Wall Street is expecting Apple to report earnings per share of $1.07 on revenue of $6.9 billion in 2008. He has also mentioned that Apple is a company which is under-promising and over-delivering (Krazit). Most of the companies promise much, but deliver less. Investors quiet often brainwashed by the promises given by the big companies and they often invest in the stocks of such companies and finally get into troubles. But Apple’s business policy is exactly opposite to that. They know it is difficult to regain the lost customer confidence if they give false promises to the customers. On the other hand, if they promise less, then the customer expectation about the yields from Apple’s stocks will also be less. At the same time when a customer gets more than what he expected, he will be greatly appreciate performances of such companies and his confidence in such companies will increase much. In short, Apple never believes in fake advertising strategies for boosting the investments in their stocks. They always deliver more than what they promise. At the beginning of 2009, many people thought that it was difficult for Apple to come up with great performances like the previous years. The selling of some of the Apple products was declined at the beginning of the year 2009. But Apple cleared all such doubts when they published their first quarter performances in 2009. Timmer (2009) has mentioned that Apple’s revenue crossed $ 10 billion mark in the first quarter of 2009 which was a big change from the last quarter $ 7.9 billion mark. Moreover the earnings per share, at $1.78, were barely up (only 2¢) year-over-year, but they rose considerably from the last quarter, when they came in at $1.26 and the quarter-to-quarter rise in profits and earnings per share were significantly higher than the rise in total revenue (Timmer). These figures clearly suggest that Apple was able to sustain its business or margins even when the consumers stayed away from the market. The illustrations given in the appendix below clearly indicate the growth of Apple’s major product; Macintosh OS not only in America, but all over the world. It is evident that in America, Mac OS has grown from 6.38 in 2007 to 7.57 in 2008 and 9.63 in 2009 whereas globally it grew from 2.5 in 2006 to 3.4 in 2008. From these statistics it is clear that the Mac OS grew gradually and significantly even in 2008 and 2009 when the global financial crisis badly struck America and other countries. It is clear that in 2010, the growth of Mac might be double that of the 2009, considering the favorable economic conditions at present. Apple on July 21, 2008 announced their financial results for its fiscal 2008 third quarter ended June 28, 2008. The Company posted revenue of $7.46 billion and net quarterly profit of $1.07 billion, or $1.19 per diluted share (Apple Reports Record Third Quarter Results) For investors in share market, the major concern is the future growth prospect of the company in which they are going to invest their money. Investors may not be much attracted by the past or present performances of a company before they decide to invest in their shares. Apple is a company which aims revolutionary changes in the computer and consumer electronic market world. They are the leaders, not the followers in the market. They have proved it many times in the past. For example, when most of the mobile phone manufacturing companies concentrate in the manufacturing and selling of ordinary normal mobile phones in the market, Apple thought differently and introduced the advanced iphone with touch screen facility in the market. Nokia and Samsung like major mobile phone manufacturers forced to follw Apple’s path in order to compete effectively with Apple in the global mobile market. The story of ipods is also not different. The ability of Apple to think differently made them different and unique in the market. Apple scored a runaway hit with its digital music players (iPod) and online music store (iTunes). Other products include mobile phones (iPhone), servers (Xserve), wireless networking equipment (AirPort), and publishing and multimedia software. Apple gets more than half of its sales in the US (Apple Inc. Cupertino, CA United States) It is impossible for the followers in the market to grow beyond certain limit as they will always for others to come up with a new idea. When others come up with a new idea, followers in business blindly follow it and when they about to establish, the market trends may change. Under such circumstances only the leaders would be able to put forwards new products according to the needs of the changing trends in market. Each and every products have four major segments in their life cycle; introduction, growth, maturity and decline. Most of the Apple’s products are in the growth stage at present which is good news for the investors. Apple products in the growth stage may bring more yields to the Apple stock investors. If an investor invests in the shares of a company which have a product in the maturity or decline stage, the investor may face severe setbacks. On the other hand growth stage is the ideal condition for the share investors as far a company’s product is concerned. Apple is now operating with over $25 billion in cash, and could probably pick up a few banks and an investment banking interest if it chose to do so (Timmer). The above figure is an indication of the financial strengths of Apple. It is a fact that even some of the biggest banks in the world don’t have such cash capital. In other words, from an investor’s point of view, investments made in Apple stocks might be safer than the investments made in some of the banks. Conclusions Apple Company is one of the rapidly growing companies in the world. Apple already climbed to the second position just behind Exxon Mobil, leaving Microsoft in the third position as far as the market capitalization is concerned. The huge cash capital made Apple one of the safest companies in the world as far as stocks are concerned. The diversified product portfolios made apple capable of sustaining their business even amidst risky market conditions. The 2008 and 2009 performance so Apple Company shows that the recent global financial crisis has not impacted Apple’s business interests much. Even in the recession period, Apple was able to grow not only in the American market, but all over the world as well. The future growth prospects of Apple Company are higher than the competitors because of the fact that many of its products are in the growth stage. Apple is a trusted brand all over the world and their ability to overcome the strong challenges caused by the financial crisis underlines their business capabilities. Apple is a leader in the computer and consumer electronics market world. The ability to think differently and to introduce new products in the market at the suitable time made Apple Company one of the hot favorites of the stock investors. Recommendations Investments in stock market should be made only after considering the growth prospects of a company. History of a company should not be considered by a stock investor. Pasts are past and there is no guarantee that a company may perform well in future even if their past histories are good. Considering the low bank interest rates for term deposits, stock investments are always a better option for the investors if they are able to forecast the future of a company correctly. Apple is one such company in which investors can blindly invest their money when we considering the future growth prospects and the immense cash capital of the company. Works Cited 1. “Apple Reports Record Third Quarter Results”. 2010. 27 May 2010. 2. “Apple Inc. Cupertino, CA United States”. 27 May 2010. 3. Cheng, Jacqui.2009. “Making Sense of Mac Market Share Figures”. 27 May 2010. 4. Kim, Ryan. 2010. “Apple Passes Microsoft As Top Tech Company”. 27 May 2010. 5. Krazit, Tom. 2008. “Apple's Mac Strength Could Keep Tech Industry on a Roll”. 27 May 2010. 6. Timmer, John. 2009. “Apple's Growth Takes a Hit, But Not a Dive”. 27 May 2010. 7. Warren, Christina. 2010. 27 May 2010. Appendix (Cheng) (Cheng) (Cheng) Read More