Apple Inc. (NASDAQ:AAPL) has withstood the test of time by using the massive profits generated by its world beating products to reinvest in research and development and continually replenish its product line. This is a much riskier approach than that of Microsoft, but investors looking for bigger gains may find Apple more attractive.
Apple is currently in an incubation phase. A skeptical market is unsure whether Apple can still find world-beating, new products. A large percentage of its current income derives from the fickle mobile phone market. Nervous investors have marked down the stock by 40%. But at a P/E of 10 with a 3% dividend and a $50 billion share buyback there’s a lot of value in Apple.
Despite the loss of Steve Jobs, Apple’s business model hasn’t changed. Tim Cook has dropped broad hints that new products will be released through the autumn and beyond causing Apple’s stock price to soar again. Apple will be with us for many years to come.
Survival Technique No. 3 – Regenerate!
Back in the sixties, Thomas J Watson Jr. realized that the future was in mainframe computers and he committed $5 billion to developing the System 360. The payback? International Business Machines Corp. (NYSE:IBM) controlled the market for years to come.
The cycle was repeated in the 1980s. When personal computers became all pervasive IBM invested large amounts and established the International Business Machines Corp. (NYSE:IBM) PC as the standard architecture.
In the 1990s the internet and e-business became the latest must-have technology and IBM invested hugely in developing solutions for e-business using open standards. PCs became commodity products and IBM quietly divested itself of the business.
Today, International Business Machines Corp. (NYSE:IBM)s Smart Planet line of products is using data analytics to provide intelligent integrated solutions to large institutions. Its Watson artificial intelligence system is being used to automate complex support systems.
In the words of IBM’s CEO Virginia Rometty:
“we pursue continuous transformation—always remixing to higher value in our portfolio and skills, in the capabilities we deliver to our clients and in our own operations and management practices.
This is not the only path to success in our industry, and it is not the easiest one. But it is ours.”
International Business Machines Corp. (NYSE:IBM)s revenues were rather flat in the first quarter 2013, resulting in a sudden drop in the share price which has since fluctuated. IBM has always followed periods of consolidation with new development and expansion. With Smart Planet and Watson fuelling the latest expansionary phase IBM is confident that the $15.25 earnings per share for 2012 will grow to at least $20 in 2015.
International Business Machines Corp. (NYSE:IBM) is reasonably priced at a P/E of 14 and has some stability in its revenues as its large customers cannot move easily to alternative suppliers. It’s also worth noting that Warren Buffet is a major investor in IBM.
Just like Dr. Who in his big blue TARDIS, IBM has withstood the test of time by continually regenerating. Perhaps now is a good time to get on board?
Ian Richards owns shares in Apple. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple, International Business Machines (NYSE:IBM)., and Microsoft. Ian is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article Dr. Who and IBM originally appeared on Fool.com is written by Ian Richards.
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