Before Apple released its record breaking earnings report last Monday, Jim Cramer noted on his “Mad Money” TV show that Apple’s earnings would disappoint, and that investors should prepare themselves to “buy Apple on weakness on Tuesday morning.” Apple’s earnings, of course, blew analyst expectations out of the water, and in the following few days, Apple’s stock reached new highs, at one point hitting $208 a share.
Granted, almost every analyst covering Apple were way off in their estimates, but Cramer’s prediction was particularly off-base, which makes his actions in the wake of Apple’s earnings report that much more interesting, if not downright comical.
On Tuesday morning of last week, the same day Cramer had previously targeted for investors to buy-in to Apple on share weakness, Cramer dressed up in a cardboard cutout of an apple and raised his price target on Apple from $264 to $300.
Cramer does raise a good point in noting that Apple’s inability to meet demand is especially impressive in light of today’s gloomy and un-friendly economy. And when you consider that Apple’s products are priced at the high end of the spectrum, it really makes you wonder just how much Apple can potentially make once the recession begins to simmer down.
Another solid point Cramer raises, and one which bullish Apple investors have been exclaiming for years now, is that despite Apple’s high stock price, it’s relatively low marketshare in both the PC and smartphone market gives it tremendous room for growth. Remember, stock prices go up when companies don’t just make a lot of money, but when the profits they generate year after year continue to increase. That’s why Microsoft over the past few years has had a hard time moving its stock price out of the $25-$35 range. When you own 90% of the PC market, as Microsoft does, opportunities for growth are essentially non-existent. Apple, however, is still growing, which is a pretty scary thought when you think about it.
Cramer also references the fact that Apple customers tend to be loyal, noting:
Once an Apple customer always an Apple customer. Ask yourself, have you ever heard anyone switching back to a competitor once they got a Mac or an iPod or now an iPhone?
I don’t know if the apocolypse is upon us, but Cramer is actually making a whole lot of sense. Think about it: Apple products are admittedly more expensive than competing products, so Apple consumers, by their very nature, have made the conscious decision to take extra money out of their wallets for products that they deem to be “better.” Practically speaking, those types of customers are far less likely to abandon ship than, say, someone who purchased a Dell because it happened to be on sale one weekend at a local Best Buy.
So because the phrase “Once you go Mac, you never go back” is actually a motto with some weight behind it, Apple doesn’t have to worry much about losing its already existing customer base – they’re already locked in by virtue of choosing Apple in the first place. That’s a luxury that most other companies would kill for.
Cramer concludes, “I think we are in the early innings of Apple’s dominance of not one but two appliances, the PC and the smartphone tsunami.”
Couldn’t agree more, and lo and behold, that’s actually 4 salient points raised by Cramer in just one kooky segment! You can check out Cramer acting ridiculous and discussing Apple in the video below.