Wednesday, January 19, 2011

The Mall, Main Street and Wall Street

Peter Lynch, the former manager of Fidelity's Magellan Fund, used to say that he got his best investing ideas at the shopping mall.  His point was pretty simple. The best stocks were usually the companies with the best products.  This usually translated into higher sales, greater profits and an increased stock price.

Look no further than Apple to see what Lynch was talking about.

in 2001, Apple lost $25 million.  Their sales were down 33% compared to the year before.  They had revenues of about $5 billion.  In 1995, their sales had been $11 billion.  Apple was a niche computer company that had difficulty attracting customers beyond the education and artist markets.  It had a hard time penetrating the home and business markets because of its inability to run Microsoft products. Its market share in the computer market had dropped to below 5% from as high as 20%.

Founder Steve Jobs, who had been forced from the company in a power struggle in 1985, returned to the company in 1997.  One of his first moves was to forge a partnership with Microsoft that would begin the turnaround of Apple.  See history of Apple.

In early 2001, Apple opened the first of its retail stores.

In late 2001, Apple introduced the iPod.

In early 2002, Apple unveiled a redesigned iMac using a G4 processor with a hemispherical base and flat panel display.

The iTunes Music Store was launched in 2003 with 2 million downloads in the first 16 days all of which were purchased on Mac computers.  By the end of 2004, they had sold 200 million songs on iTunes.  By early 2010, total sales were over 10 billion!

The iPhone was introduced in January, 2007.  They sold 7.5 million phones in the first 6 months.  Sales by the end of Apple's 2010 fiscal year were over 73.5 million phones.

The App store was launched in mid-2008.  There over 300,000 apps approved by Apple today.

The iPad was introduced in April, 2010 and sold 3 million units in the first 80 days.

In Apple's first quarter results for fiscal 2011 that were announced yesterday, Apple sold 4.1 million iMacs, 16.2 million iPhones and 7.3 million iPads.  These are sales in just 3 months!  They had $27 billion in revenue and $6 billion in profit in the quarter.  Remember, this is a company that had annual revenues of $ 5 billion for the entire year in 2001.

What has all this meant for the stock price?  On December 31, 2002 Apple was trading at $7.16 per share (adjusted for splits).  On December 31, 2006, it was trading at $84.84 on the strength of the iPod.  On December 31, 2010 (carried even further by the iPhone) the stock was at $322.56.  That is a 45-fold increase in 8 years.  Apple is worth more than Microsoft today.  Apple's market cap is $312 billion  compared to $245 billion for Microsoft.  Apple also has over $50  billion in cash on hand on its balance sheet.

A pretty simple formula for investing.  Look around you.  If you see something you, your friends and neighbors like, do some research on the company that produces it.  It may be an investment opportunity for you.  Walking through the Mall or down Main Street is often a better place to find investment  ideas than Wall Street.

No comments:

Post a Comment