Apple Inc. (Nasdaq: AAPL) has been positively pounded over the past few months, and the stock is down more than 25% from a peak of $132.97 per share. Icahn’s out, insiders are bailing, and iPhone sales are slowing… the list of “failures” is growing longer by the minute, or so goes conventional wisdom.

I’m not particularly worried – Apple is not going to “pull a BlackBerry” any time soon.

Let me show you why.

[ad#Google Adsense 336×280-IA]So… What Gives?

Basically we have a situation where the investing public still identifies with Apple as a growth company driven by devices at a time when CEO Tim Cook thinks of it in terms of an “ecosphere.”

It’s a fundamental mismatch based on perception… not reality… and, as a result, a great buying opportunity.

The company is priced as if it’s going to go out of existence based on a 16% decline in iPhone sales during Q1 2016.

And yet…

  • Apple has enough cash on hand to sustain current dividends and operations for a “generation,” according to NYU professor Aswath Damodaran, who is a valuation expert, which jibes with my numbers.
  • The company has more than doubled profits from app sales and services to $6 billion by Q2 2016, according to MarketWatch.
  • Apple has made several key investments in online/offline businesses in China, the most significant of which was an investment in Didi Chuxing, and has signed key agreements with China UnionPay in a move that will allow it to compete with Alibaba Group Holding Ltd. (NYSE: BABA).
  • What’s more, the tech giant has teamed up with IBM Corp. (NYSE: IBM) to generate iOS corporate sales to business app clients.

The Apple bears don’t seem to have caught on to any of this yet. That’s something we can use to our advantage.

You see, I believe it’s possible these shares could hit $200 in the next 24 to 36 months as public perception catches up with the reality Tim Cook & Co. are building today.

Ninety-nine percent of investors don’t realize what’s happening as the “Apple ecosphere” becomes reality – and that’s what makes Apple such a compelling opportunity right now.

We’re not alone in our thinking, incidentally.

Brian White of Brexil Hamilton reiterated a “Buy” and a $185 price target. UBS’s Steven Milunovich was more conservative in a client note, but believes current prices reflect “product cycle bears” and stuck to his initial target of $115. But then he, too, came into my neighborhood noting that $200 a share isn’t out of the question if the company hits another hardware home run.

It’s important to remember that Apple has a long history of reinventing itself at times when the market least expects it to, which is why you want to concentrate not on the devices but on the higher-margin services it offers.

Not many people realize this, but Apple now makes more money selling services than it does selling Macs and iPads. What’s more, services revenue contributed $6 billion to the top line in the most recent quarter, which represents a 20% increase from the same quarter a year ago.

That’s not even the best part…

Here’s the Real Key

Apple’s service business profit margins grew by 60% in 2015, and is growing even faster now as management continues to leverage its user base of – say it with me – more than 1 billion Apple devices.

Services don’t cost a lot to acquire, nor do they cost a lot to provide, which means, of course, that more money comes to the bottom line.

This is what Cook sees and what the vast majority of the investing public does not… yet.

So, if you don’t already own Apple, now’s the time to get on board or risk getting left behind. It offers one of the best opportunities on the market to play one of my favorite Unstoppable Trends – Technology.

How Keith Does It

Technology is one of just six lucrative “Unstoppable Trends” Keith tracks to bring his readers some of the best investment recommendations on the markets today. These trends have been making fortunes for centuries, and they’ll likely continue to do so throughout the 21st century.

–Keith Fitz-Gerald


Source: Money Morning