Apple Still a Screaming Buy

This column originally appeared on Real Money at 9:30 a.m. on March 8.

NEW YORK ( Real Money) -- It takes a lot to convince some people of the obvious. I was reminded of this when I read a New York Times article about the new Apple ( AAPL) iPad Wednesday: "Apple Upgrades iPad With Modest Changes." Modest changes?

The article then went on to specify what these changes were -- all enormous improvements on the iPad 2: a retina display with 3.1 million pixels, four times more than what's on the current model of iPad 2; the 4G technology; the A5X quad-core graphics chip; and the back-facing 5-megapixel camera.

The device is only slightly thicker than its predecessor, and it's heavier by just one-tenth of an ounce. Yet the cost remains steady: $499 with Wi-Fi connectivity and $629 for 4G. (The lowest iPad 2 price point has now been brought down to $399.)

Meanwhile, we can talk about hardware all day, but software is what really drives hardware demand -- and iPad apps now number more than 200,000, according to Apple.

My guess is that this iPad will be a runaway hit, much as the iPhone 4S has been. That latter model was also publicly knocked, at first, because of its seemingly modest enhancements, yet it went on to become a major bestseller. People -- and especially Apple devotees -- want the latest and greatest, and that's evidenced here: An online poll found that 42% of those who now own an iPad plan to buy the new one, according to NPR program Marketplace.

The Times notes that, in the holiday quarter of last year, iPad sales came to $9.15 billion, almost double that generated by Microsoft ( MSFT) from Windows software, and close to Google's ( GOOG) total revenue during the same period. Keep in mind that, at that time, the iPad 2 was already more than six months old. In view of this, I'm thinking the newest model will provide a major goosing to Apple's revenue and profits. More than one analyst has predicted Apple will sell 55 million iPads in fiscal 2012, and maybe more. In fiscal 2011, it sold about about 32 million units.

In short, I believe if you do not already own Apple stock, it is time you seriously consider changing that. One of my guru stock-picking strategies, which I base on the writings of Martin Zweig, looks at a company's financials -- not the hype about a new product -- and it's also a fan of Apple.

The Zwieg strategy likes the stock's price-to-earnings ratio of 15.1 times, its sales growth, its consistent increases in earnings per share and its total lack of debt. The screen also looks at annual and quarterly earnings acceleration, and indications are that the Apple's revamped products will continue to push that growth at a rapid clip.

There might be some concern that the iPad's sales growth will slow down. After all, 73% of American tablet-owners have iPads, according to a Forrester Research survey. Certainly, also, Apple is likely to lose some market share as competitors bring out a bevy of new tablet computers. But the growth in the overall tablet market is likely to keep accelerating as computer users move off laptops and desktops, so iPad sales are likely to remain burning hot for the foreseeable future. Again, that fits nicely into the demands of the Zweig strategy.

In short, you do not have to want an iPad or iPhone to want Apple stock -- because plenty of people around the world do want these gizmos. Apple is worth more than a half-trillion dollars, and it still has room to grow.

At the time of publication, Reese and his clients were long AAPL..
John P. Reese is founder and CEO of Validea.com, an investment research firm, and Validea Capital Management, an asset management firm serving affluent investors and companies. He is also co-author of two investing books, including The Guru Investor: How to Beat the Market Using History's Best Investment Strategies (Wiley). Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Reese appreciates your feedback. Click here to send him an email.

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