I've held Apple stock in my Strategy Lab model growth portfolio ever since we launched the series in September, 2012. Only recently has the share price advanced to make it even slightly profitable. With such lagging performance compared with Netflix, Facebook, Tesla Motors and other names in my portfolio, shouldn't I be dumping Apple?
Not so fast. I still feel very confident about Apple's ability to build long-term dominance in the mobile-computing industry compared with its past position in desktop computing; iOS (Apple's mobile operating system) is destined to be much more relevant and profitable than MacOS (the operating system for Macintosh computers). Not only is the mobile industry shaping up to be much larger than the desktop industry, but Apple holds a much stronger No. 2 position against Google's Android than it does against Microsoft's Windows in the old-world desktop market.
As a long-term investor, I don't pay too much attention to day-to-day headlines about the stock price. But I do pay attention to product launches. On Tuesday, Apple is expected to unveil the iPhone 6 in addition to a mobile-wallet solution and a new wearable device of some kind. Together, I think these moves stand a good chance of helping Apple cement growth for the next decade.
The iPhone 6 is expected to have a larger screen than prior models. Version 8 of iOS, which includes many desirable new features, will also get released to consumers shortly. Together, these updates will pull more customers in Apple's direction. I'm expecting Apple will set another sales record this coming holiday season, and that the stock market will appreciate the growth in their business.
But perhaps more important than the iPhone 6 is the expectation that Apple will launch a unique and super-simple mobile payment solution. Many industry pundits believe Apple has struck deals with major banks and credit card companies so that a customer's iPhone can duplicate the functionality of a credit card but with increased security. People have dubbed this "iWallet." Just touch the phone's fingerprint sensor and tap it against a compatible payment terminal at a retail shop and you've made a secure payment. If Apple can simplify mobile payments while adding a new level of security, I expect they'll be taking a small cut of all transactions that use this new platform. Investors should appreciate what could amount to another significant revenue stream.
Some of the best minds following Apple also believe the company may launch a fingerprint-based method to replace the often confusing world of user ID and password information needed to log in to websites. If Apple can reinvent the way people log in to their online accounts through the use of the iPhone 6, I believe a lot more people will decide to purchase Apple products instead of the competition.
While we wait for these potential new products and services to hit the market, I think the stock remains undervalued. The shares trade at a price-to-earnings ratio of about 14 based on next year's consensus earnings estimate by analysts. I like the risk-versus-reward profile of this situation, considering Apple's anticipated new product releases.
What if I'm wrong about Apple's strength in mobile computing over the next decade? The biggest risk, in my opinion, is competition from Google. I've invested in both Google and Apple because I see both companies as highly disruptive to the former computing leader, Microsoft. I expect my combined investments in Google and Apple will perform better than the overall market in the next decade.