Think Apple's run is over? Not so, says Bob Turner, Chief Investment Officer of Turner Investments, who manages $17.5 billion. He bought 100,000 shares for his funds on Feb. 11, bringing his total to 2 million.
1. Tech spending will be up; Apple (aapl) benefits.
"Technology spending is growing faster than the overall economy," says Turner. It'll be about double the GDP, growing somewhere in the range of 8% to 10%, he estimates. "This will be good across the board for technology companies, but especially Apple. With must-have products like the iPhone, a booming app store, and its increasingly popular notebooks, Apple benefited when tech spending was down. It will benefit even more as spending rises over the next 12 months."
2. Apple has superior earnings growth.
"Apple's earnings growth has been phenomenal, and there is no reason to think it will slow," says Turner. "Over the last seven years Apple has had a compound annual earnings growth rate of more than 85%."
Over the next five years Turner projects that Apple's earnings will rise 25% a year. The competition isn't even close: Dell (dell) will be lucky to increase earnings 7% to 10% in the same period, Hewlett-Packard (hpq) maybe 10% to 12%, according to Turner.
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3. Apple is fairly priced compared with expected earnings.
"My rule with share price is you can't look at where it's been -- you need to look at where it's going," he says. "So, while you can't call Apple a bargain at $200 a share, the stock still has an attractive P/E. It trades at 17 times this year's consensus earnings estimate, and 15 times next year's estimate. It looks cheaper when you consider that Apple also has $43 per share in cash and equivalents on its balance sheet. People get seduced into buying a stock when it goes from $30 to $10, but that doesn't mean it can't go lower. Apple has gone from single digits to $200 a share, but it could still go from $200 to $300."
4. Apple still has the ability to surprise and beat the Street.
"Apple did it with the iPhone and its app store, and there is plenty of room to keep growing the iPhone's market share," Turner says. "It's really only about 3% of total handsets sold now. If they double or triple that, which doesn't seem inconceivable as they gather steam in Europe, Asia, and India, it's way above what is expected. If that happens, share price soars. The iPad and the ecosystem it'll create are also another opportunity to post an earnings surprise, and shareholders will benefit."
5. It's the most innovative company in the world.
"That may sound obvious, but it doesn't meet demand -- it creates a need with products that everyone wants. For example, you can go to our nearby mall on a Thursday evening, and when it looks as if there are maybe 20 people in the mall, you walk into the Apple store and it's packed. Everyone in my family has an iPhone except me, and my four kids and my wife all use Mac computers. You never really hear anybody say anything bad about Apple products. Their hardware is a must-have. I don't use a Mac because our office is all PCs, but I am going to get an iPad. It might be fun for traveling."