I like the look of Apple’s new phones – but are the shares worth buying too?
With new iPhones and a foray into 'wearable tech', these are exciting times for Apple. But is all the good news already in the price? Ed Bowsher takes a look.
With era-defining gadgets from the iPod to the iPad under its belt, any new product launch from Apple (Nasdaq: AAPL) is always big news in the tech world.
Now Apple has finally launched its long-awaited watch its move into wearable tech'. Plus two new iPhones too.
Some critics aren't impressed. They complain that Apple hasn't delivered enough innovation.
But that doesn't worry me. I think the new products look great, and I reckon they will boost Apple's sales next year.
In fact, even if Apple's watch is a total flop, the new phones on their own are probably strong enough to ensure that the company continues to prosper.
Trouble is, Apple's share price has risen a fair way since June, probably in anticipation of this week's launch.
So is all the good news in the share price already? Or are the shares worth buying now?
The lowdown on Apple's new products
If you're at all interested, you've probably already read a fair bit on Apple's new products. But for the uninitiated, here's a quick summary.
Apple is launching two new smartphones: the iPhone 6 and the iPhone 6 Plus. Both have larger screens than the current phones and are also thinner the Plus' phone will have a 5.5 inch screen compared to four inches on the existing iPhone 5S.
Battery power has been boosted by at least 50%, and customers will be able to use the phones as payment devices as part of the new Apple Pay service.
The new watch, branded as the Watch (note the capital w') rather than the iWatch, is being pushed very much as a fashion item. Sure, it offers some useful functions, such as health monitoring, but these functions appear to be a secondary part of the offer. It's all about looking cool and sophisticated.
The new phones will be on sale later this month. You won't be able to get hold of a Watch until next year.
Now, as I said at the top, none of these products are massively innovative. The likes of Samsung already make phones with larger screens. There are also already watches out there that sync up with your smartphone.
Remember though, that Apple didn't launch the first tablet computer. It didn't even launch the first smartphone. But it does have a track record of taking existing technologies and giving them a must have' wrapper.
I fully expect iPhone sales to reach record levels over the next year and I think the larger screens mean that Apple will be able to sign up a good chunk of first time' Apple customers. The Watch could help with that too. The Watch will only work if you have an iPhone, so if you want one of Apple's watches, you need to have an iPhone too.
New users would then become part of Apple's ecosystem' which would be a great bonus. Once Apple has captured a new customer, he or she is more likely to purchase other Apple products in the future.
I'm not just talking about further Apple hardware here having more customers in the Apple ecosystem should boost iTunes sales (iTunes is Apple's digital content shop').
Apple Pay which basically turns your phone into a debit card could also generate a nice little revenue stream if large numbers of Apple customers start to use it.
So are Apple shares worth buying?
It's all very exciting if you like this sort of thing. I said last month that Apple looked like a good short-term bet in advance of the iPhone 6 launch. At that stage, the share price was $94.
I was reasonably positive about Apple's shares over the longer term, but said they weren't a "must invest". I held back from full-blown enthusiasm on the basis that Apple's high profit margins might come under pressure from 2016 onwards.
However, the new launches make me confident that Apple can defend its margins for longer. That makes me think that the current $101 share price is actually pretty attractive.
Apple trades on a forward price/earnings ratio of 14, and it still has a very strong balance sheet with plenty of cash in the bank. And that's after a huge programme of share buybacks and dividends which started in 2012.
In fact, the total payback from this programme is expected to reach $130bn by the end of next year. Granted, Apple is a very large company, with a $600bn market cap, but $130bn is still a huge boost for shareholders.
It looks like most of the good news on the iPhone is in the share price, but I suspect that investors still aren't convinced by the Watch. My hunch is that the Watch will succeed, but on nothing like the scale of the iPhone or iPad.
If I'm right, you should expect further gains in the share price over the next year (barring a market crash). And the nice thing is the risk is relatively low for a large tech stock. That's because the new iPhones should put a floor under the share price were the Watch to fail completely.
So when all is said and done, this has been a good week for Apple. Now I just need to persuade my wife to buy me an iPhone 6 for my birthday in November
The other exciting thing about the phones, of course, is the potential for using them as payment devices. I haven't touched on this much in this piece, but my colleague David Thornton is all over the subject right now he's been looking at some of the most exciting ways to invest in this sector, and in much tinier companies with more potential than a goliath such asApple.
He'll be writing more about it in MoneyWeek magazine soon, but if you can't wait that long, have a read of his latest report on the topic.
Red Hot Penny Shares is a regulated product issued by Fleet Street Publications Ltd. Your capital is at risk when you invest in shares; never risk more than you can afford to lose. Forecasts are not a reliable indicator of future results. Penny shares can be riskier than other investments they can be relatively hard to trade and if you need to sell soon after you've bought you might get less back than you paid. Please seek independent financial advice if necessary. Customer Services: 0207 633 3601.
Our recommended articles for today
The rise of nationalism and the end of civilisation
The EU, globalisation and an unaccountable political elite have combined to create a sense of powerlessness among the electorate. It won't end well, says Merryn Somerset Webb.
Great news if you're invested in the FTSE
A weaker pound will be a great boon for British companies small and large, says Bengt Saelensmide. Here, he explains why.
On this day in history
11 September 1792: The French Blue diamond is stolen
On this day in 1792, a riotous mob ransacked the French crown jewels and made off with the famous French Blue diamond.