Apple (Nasdaq: AAPL) has been blowing investors away quarter after quarter. In its last quarter, revenue was up 59 percent over year-ago levels and earnings nearly doubled. Over the past decade, the stock has grown by almost 50 percent annually, on average, and recently traded around $560 per share.
Amazingly, Apple still looks cheap to many, with some Wall Street analysts setting target prices above $900. In addition, the cash-laden company has initiated a dividend. It begins in late 2012 and yields about 1.9 percent at recent rates.
It may seem like Apple can do no wrong. When its third-generation iPad debuted, 3 million were sold in its first weekend. The company sold 35 million iPhones and nearly 12 million iPads in its last quarter.
Things can change, though. Apple may be making most of the profits in mobile, but Android is the open-source platform dominating the global smartphone market. Apple is the undisputed market leader in tablets, but Android threatens there, too. Meanwhile, Windows 8 is expected to be very tablet-friendly when it rolls out later this year.
Still, it’s likely that Apple will grow in value. iPhones and iPads are still early in their global growth cycles, and new products, such as iTV, are being developed. Consider adding this fruit to your basket. (The Motley Fool owns shares of Apple and its newsletters have recommended it.)
Ask the Fool
Q: Is it better to invest in bonds or Treasury bills, as they’re less risky than stocks? – M.L., Allentown, Pa.
A: Interest rates have been very low for a long time now, making bonds generally less attractive. Still, they do have their place.
Consider, for example, your time horizon. If you’ll need the money you’re investing within five years (or 10, to be more conservative), it shouldn’t be in stocks. The stock market can move in any direction in the short run, but over long periods it has tended to go up. Short-term money should parked in less volatile places, such as money market funds, CDs and bonds. (Learn more at fool.com/savings/savings.htm.)
Next, consider your risk tolerance. Stocks can rise and fall sharply in value over a short period. If you’re a long-term investor who can stomach such moves, great. If not, consider less-volatile, slower-growing investments, such as bonds – though bond prices can fluctuate considerably, too.
Finally, remember that when the stock market is down is usually a good time to buy, as many solid stocks will be on sale. Just take time to think through what you’re doing and be sure of your plan.
Q: What’s a “market maker”? – C.N., Phoenix
A: You may think that when you buy stock you’re getting those shares directly from a shareholder who’s selling, but stocks are generally bought and sold through market makers. They keep the market fluid and profit by pocketing some or all of the spread between the purchase and sale price. They’ll typically keep some shares in inventory, too. That way, if someone wants to buy shares and no one wants to sell at that time, they can sell from inventory.
My smartest investment
Years ago, when Lear Jet stock first began trading, I bought 100 shares for about $10 each, or $1,000. Within a year, the stock was soaring, like a jet. I sold half of my stake at $53 per share and collected $2,650. Not long after that, the company ended up in bankruptcy. Too bad I didn’t buy more shares initially. – C.S., Tucson, Ariz.
The Fool responds: Once a stock has grown a lot, it can be smart to sell some of your stake – to lock in a gain and perhaps recoup your entire initial investment, if not more. (It can be best to just let the money keep growing, though, if you’re confident that the shares have a lot of growth left.)
You lucked out a bit here, though. Had you bought more shares and not sold when you did, you might have lost a lot. Solid returns are never guaranteed, but the more research you do into a company, the more likely you are to spot problems that could hurt performance – or even lead to bankruptcy. Bombardier owns Learjet (now one word) today.