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.
October 28th, 2009 at 9:26 am
He is an idiot and needs to be investigated ! Why doesn’t the SEC see how many shares of Apple this clown owns, anybody remember Henry Bodget ??
October 28th, 2009 at 10:26 am
Well, it seems to me that it’s untrue that “When you own 90% of the PC market, as Microsoft does, opportunities for growth are essentially non-existent.” This is because the statements assumes that expansion is limited because the box has a lid that is welded, which is untrue. If it were true, then Apple could no longer expand its market share, yet it does. How? By developing new products/markets. In Apple’s case it’s the iPhone, for example. In MS’s case, it’s the Zune and WinMo as the new products/markets. However, both are not growing — both are near-failures — not because that opportunities for growth are non-existent, but because the opportunities for growth are mismanaged. And for reasons like this, MS’s stock is stalemated and Apple’s stock is on the rise.
October 28th, 2009 at 11:23 am
Uh, John, unless you haven’t noticed it, the Zune has been a total disaster. WinMo started strongly, but has rapidly faded to nothing. It’s become another disaster. XBox? It’s doing well in sales, but for years, MS lost over $100 on every box. And that’s just for the hardware and not counting the development costs or the currently reported 50% RETURN RATES.
MS does very well selling to business. They make most of their billions selling to business due to a lock in monopoly they have developed. But when it comes to selling to consumers, every product they have is either a sales disaster or a financial disaster. The keyboards and mice they sell are good…but they’re designed and made by other companies and MS just puts a label on them. Besides, they sell in insignificant numbers.
The ONLY way MS makes money is by selling Windows and Office. Windows is primarily sold only when people by new computers–the amount of upgrades sold to consumers is practically meaningless. For Office they keep adding more and more bloat, leading to slowly increasing competition.
Microsoft, thanks to its business model and the blindness of Balmer and the BoD has reached its apex. The line down for them won’t be straight–it will have points that go higher and lower–but the general direction is down. Like IBM who they righteously screwed with DOS, Windows, and OS2, they will become irrelevant. They’ll be around for a long time to come, but as an important mover, the bears are out.
That’s why W7 looks like ugly versions of OS X
That why W7 steal the most visual aspects of OS X
That’s why MS advertising is so very bad.
That’s why MS marketing is so bad.
That why MS thought they’d be his advertising on Family Guy, but when they actually saw the show (didn’t anyone look before?) the became typical cowards and backed out–it was too edgy for them.
That’s why XBox quality control is so bad.
That’s why the Zune is a failure.
That’s why WinMo is on the way to vanishing.
That’s why the best MS can do with store design is to copy Apple stores.
MS just doesn’t get it.
Sell your MS stock now, before some big Windows flaw that MS can’t cover up sends the price south so far it will never recover.
October 28th, 2009 at 12:40 pm
To hell with $300. Let’s just keep Apple stock at $200 first off. It’s been bleeding red for the past week. WTF! Amazon is putting Apple to shame. How about investors kicking in some more cash. China Unicom is just about ready to release the ChiPhone so how about showing some love to Apple. All those 100,000 apps aren’t impressing investors one bit. Just when it looked like Apple was going to start challenging Microsoft’s market cap, it’s heading in the opposite direction. C’mon Apple, don’t let me down.