The Stock Nipping at Apple's Core

10/12/2011 7:30 am EST

Focus: GLOBAL

Neil George

Editor-in-Chief, Income Publication and Products, Agora Financial

Investors need to go to the source of the true genius of technology, says Neil George of The Pay Me Strategy.

Investors in Apple (AAPL) have indeed made a fortune over the past several years. In fact, over the past decade the return has been some 4,243%. For those that got on board and stayed on board—congratulations.

I say congratulations because it’s very tough to invest in a company like this. For in the beginning, there’s plenty of scariness. Products in the pipeline are hard to define, and who knows how they might play out in the market.

Then, as the company garners all of the attention of both Wall Street and Main Street, shares head to the stratosphere of valuations. The result is how to value such a company and its shares.

The result becomes a lesson of the greater fool theory. As a company like this is trading at multiples of assets and sales, and really is only as good as its next new thing—how are you to expect it to keep topping itself quarter after quarter?

Success then becomes a game of nerves—will the market keep liking the stock, or will it suddenly become the target of choice for the short-sellers?

So, again, congratulations for those that made it for the past decade. Now take your money and run.

Behind the Glass Screen
The former CEO of Apple was a marketing genius. More than plenty has been written about his accomplishments, and shareholders know this best of all.

But as the world saw this month, when the genius isn’t involved, there seems to be a bit of a vacuum. The flagship product rollout was met with a global muttering of ho-hum.

Sure, there will be some sales of the new phone products. And sure, folks will keep buying the rest of the product lines, and continue to be locked into the online content shop. But it’s hard to see were the next new thing will come from within the existing known talent pool of the company.

Moreover, the interesting thing about all of the past whiz-bang gizmos of the company is that while the packaging and marketing might have been genius, few of them would have been possible without the innovations and production coming out of Suwon, Korea.

And if you’ve been following along with my calls on stocks for the past same decade, you’ve been cashing in on the company behind the shiny new glass screens in Apple products—Samsung Electronics (SSNLF).

Sure, there are the assemblers—including Foxconn, nee Hon Hai—but the folks that figure out how the stuff happens behind the glass has been Samsung. And for the past decade, the shares have generated a return of some 500%.

Not as stellar as 4,234%, but 500% is good.

Moreover, even after gaining some five times the stock is still a bargain, trading for less than its trailing sales—not multiples of sales.

And those sales of all of those high-end chips that make all of those things appear on the glass screens, along with the other bits—including the screens themselves—along with countless other products for its own high-quality products, as well as Sony (SNE), HTC (TPE: 2498), and others, gives annual sales gains for the company running at over 25%.

Not that the market hasn’t completely noticed this. The shares have continued to perform over the past year.

In fact, despite the recent few weeks stock market mess, the trailing year’s performance of Samsung has been some more than 14.1%. And even with the US dollar gains of late, the net return for US investors is still a very healthy more than 8% gain.

Leave the apple and go for the tree—buy and own Samsung under $850 a share.

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