Wolf's Stock Pick for January 28 2016 - Apple (AAPL)

I'm what you would call a "long" investor.  I don't like to buy a stock hoping it will go up in value quickly so that I can sell it.  Nope.  I usually like long term investments, usually the kind that pay you a hefty dividend (5% is my target).  So when I look at a stock like Apple (AAPL), with a dividend yield below 2%, that's a bit of a deviation for me - and it's a sign that I feel strongly that the stock in question will perform well in the long run, generating a nice return regardless of dividend yield.

Apple's had a rough past few months.  They went from a high of $132 a share to around $95, which is where they sit as I'm writing this.  Despite just reporting their most profitable quarter ever - 75 billion dollars - the industry is worried that we've hit "peak iPhone".  This is partially due to the fact that both Apple and Samsung are projecting declining revenue from smartphone sales, and it's not hard to believe.  They've both been selling into the market for almost ten years now, and the market is getting saturated.  Sure, there will always be new smartphones being sold, to replace existing ones, or to furnish phones to our ever-burgeoning population.  But the rate of increase of sales is hitting a plateau, and with that, pundits think, so will the stock prices.

I think they're wrong.

Apple is far more than the iPhone.  Look back in time to the late 1990's, when Apple was "just" a computer company - and an almost failing one at that.  Steve Jobs returned to the helm and provided Apple with the vision for the next 50 years - one that set Apple as not just a computer visionary, but a technology and lifestyle visionary.  The first fruits of that path were the iPod - a gadget that the industry predicted would fail.  Now think back to how many iPods you personally have purchased, whether for yourself or family.  Think back to how much revenue those iPods made Apple.  Think about the competing products that tried to make it big but inevitably failed (remember the Zune?).  Apple captured the market, and their stock soared.

Of course, you're saying to yourself, "sure, but the iPod is dead".  Yes, it is - replaced by the next paradigm, that everyone also copied - the smart phone.  The iPhone was an iPod - it did everything the iPod did and more, and now everyone is carrying one of those.  And similarly, industry experts initially thought that the iPhone would flop.

Apple repeated this with the iPad - again a piece of technology that pundits thought would fail become a huge success, leading to competing gadgets like Android tablets.  And Apple's stock soared.

So why do I recommend Apple now, today?  At peak iPhone, can Apple possibly repeat history and come up with the next gadget that we all have to have?  It's not the Apple Watch, I can tell you that - I have one, and I love it, but it's not something for everyone.  And it's not the Apple Car, which they are "secretly" working on (the worst kept Apple secret, which makes me suspicious that it's a smoke screen for something else).  So what is the next wave?

Virtual Reality.

Okay, I'll wait for you to stop laughing.  Just a minute or so.

Ready?

Okay.

We've talked about Virtual Reality (VR) for decades.  I've worn the damn helmets myself and played "Dactyl Nightmare" at the arcades, and it wasn't pretty.  So why is VR going to really happen, really work now?

Because we already have it in everyone's pocket.

 Look at Google Maps and see how many places are tagged.  We use VR all the time to provide us with supplemental information on the world around us.  Not for games, but to enrichen our lives with information.  That's what smartphones have addicted us to.

We've already made forays into this world with apps that do "augmented reality" - they overlay information on top of reality.  Imagine turning on your phone's camera and looking at the world around you through it and seeing not just reality, but tags indicating names of places, restaurant and bar reviews, specials and sales, sights and tourism ideas.  These apps are already out there today, but they aren't well integrated - some apps specialize in some times of added information (layers)  but no app provides all layers.

Google Glass made a run at it, but it wasn't right, somehow - too clumsy, not elegant or intuitive.

That's where Apple comes in.

Apple has been buying up companies that do a multitude of things, LinX, manufacturer of multi-aperture cameras, perfect for 3D scanning.  Today you can already make a panoramic image by waving your phone in the air while holding down the camera button - now imagine that instead you walk around an object and capture it as a 3D model - perfect to add to VR, or for sending to a digital printer.

They've also purchased FaceShift, a motion capture company (used in creating some of the creature motion effects in Star Wars), and PrimeSense, a motion sensor company - the sorts of things you need to accurately creating and manipulating a VR space.

To top it off, for years now Apple has been in the mapping business, competing with Google Maps.

Put all those pieces together and it smells like Apple is thinking that the next big thing will be VR.  But not just VR, VR that works and seamlessly integrates with your daily experience.  That's what the iPod was all about.  It's what the iPhone was about, and it's what Apple Watch is all about - seamless integration of technology into your world, feeding you information on demand.

Today's a great day to buy Apple - while the markets think they are once again "finished" and are out of steam.  I predict that buying Apple today at $95 will pay off in two years with at least a 10% yield - every bit as good as if you purchase, say, AT&T (T) stock and go for the dividend, and even better when you factor in the 1.7% dividend that Apple does pay.

Disclaimer - I am not a financial expert and I am not responsible for any losses - or gains - you may make if you make decisions based on the information posted here.  If you do make money, please feel free to let me know!

Disclosure - Wolfgang Rumpf owns shares in Apple, AT&T, mentioned above.

Welcome to Transcribblings!

Welcome to Transcribblings!  I'm Dr. Wolfgang Rumpf, a Ph.D. Molecular Biologist/Computational Biologist with absolutely no formal training in business, trading, commodities, or finances whatsover.
This blog is going to contain investment advice, based on my many years of following the markets and various technology sectors.  I'm going to say this here and now - this is for entertainment only, so if you invest in any of the stocks I'm going to heartily recommend, remember that caveat emptor applies.  In other words, if you end up losing money, well, that's just the nature of the market.  If, on the other hand, you become rich beyond dreams, please consider donating to my retirement fund - or at least, my bourbon and rum fund.