Things are turning around for one of the largest companies in the world…
After falling 11% in the first half of September, Apple Inc. (NASDAQ:AAPL) has rebounded from its monthly low of $450 a share.
Before the rally, shares of Apple were down due to market concern that demand for the company’s flagship product line — the iPhone — was dwindling. Adding to the panic were analyst fears that the company’s newest additions to the iPhone arsenal, the iPhone 5s and iPhone 5c, were neither cheap enough nor different enough to attract new customers.
Those analysts were dead wrong.
In the weekend debut of the company’s new iPhones, Apple sold a record 9 million phones. Even the loftiest of predictions didn’t expect the company would sell any more than 8 million. The announcement spurred a 4% rally in Apple stock on Monday, a day when the S&P 500 was down 0.3%.
But even after the rally, there are still plenty of reasons we’re bullish on Apple.
For starters, with a profit margin of 22%, Apple is without a doubt one of the most profitable companies among the tech giants. By comparison, Google Inc (NASDAQ:GOOG) profit margin is 20%, International Business Machines Corp. (NYSE:IBM) is 15%, and Sony Corporation (ADR) (NYSE:SNE) is a mere 1%. Those thick margins helped Apple collect 53% of all the global profit in the $280 billion smartphone market last quarter.
What’s more, despite the naysayers, the company is still growing… and quickly. In the first quarter of 2013, Apple reported record revenue of $54.5 billion, up 17.7% from the year-ago quarter. While second-quarter growth wasn’t as strong, the company still managed to increase sales 11%.
One of the catalysts supporting Apple’s growth right now is China — the world’s largest mobile market. With a population of 1.3 billion and a smartphone penetration rate of just 16% (only 16 out of 100 people own smartphones), the People’s Republic represents a huge opportunity for Apple. And the company is already starting to take advantage of it.
For the first time in the corporation’s history, Apple released its new iPhones in China the same day it released them to the rest of the world (usually, there’s a three-month delay). As evidenced by the company’s record-setting weekend, this plan clearly worked.
As further proof of Apple’s commitment to increasing its market share in China, Apple has also been working on an agreement to make iPhones available to China Mobile Ltd. (ADR) (NYSE:CHL) wireless customers. This is a big deal. With roughly 70% of the Chinese cellphone market, China Mobile has over 700 million users — more than double the size of the U.S. population. If Apple can strike a deal with China Mobile, this could potentially unlock millions of new customers for the iPhone maker.
Yet despite these positive tailwinds, shares of Apple are dirt-cheap… even after the recent rally.
As of today’s close, Apple was trading near $490. With trailing 12-month earnings of $40.36 per share, the company is trading at a price-to-earnings (P/E) ratio of just 12.1. That’s a 37% discount to the S&P 500 index’s P/E of 19.2 and significantly less than the P/E ratios of rivals Google (25.3), Sony (25.7) and IBM (13.6).
This is exactly the kind of opportunity my colleague Elliott Gue looks for in his premium newsletter, Top 10 Stocks. Apple’s cheap valuation, big competitive advantages, thick profit margins and 2.6% dividend yield could make its shares a valuable addition to anyone’s portfolio.
Could Apple become the largest bank in America?
But fundamentals aside, there’s another reason our analysts here at StreetAuthority are watching Apple very closely right now, and I doubt you’ll hear about it from any of the major media sources…
In a recent report, “The Hottest Investment Opportunities for 2014,” my colleague Andy Obermueller makes a bold prediction about Apple’s future. He recently told his Game-Changing Stocks subscribers that Apple is about to become one of the largest “banks” in America.
As Andy explains in a recent issue of StreetAuthority Daily:
“I predict that within the next 12 months, Apple will create a new currency called ‘iCash’ and become the largest ‘bank’ in America.
