Best Stock 2015: Apple, Inc.

By Markets Fool.com

This article is part of the series Top Tech Stocks 2015. Click here to read other installments of this series.

Continue Reading Below

It's that time of year again.

Source: Apple.

As is so often the case when a new year begins, investors are surveying the field in search of new investing ideas, and I'm here to help in my own small way. Recently, I briefly highlighted my five favorite technology stocks that I believe long-term investors should consider adding to their portfolios in 2015.

And in this follow-up piece, I'll examine in greater detail why I believe technology giant Apple still has room to run in the year ahead.

Continue Reading Below

Apple set to hit new highs
Apple's financial performance over FY 2015 can largely be boiled down to a single sentence. As the iPhone 6 and 6 Plus go, so goes Apple. We know now that the iPhone has blossomed into a $100 billion business, and that same mind-boggling success isn't likely to abate any time soon, for several reasons.

For starters, the iPhone 6 and 6 Plus offer several technological upgrades over its predecessor. Broadly speaking, the new iPhones are larger, thinner, and faster than the iPhone 5s, and new features such as the Health app and Apple Pay offer enough differentiation to encourage consumers to upgrade. However, the primary underlying factor that should drive the vast majority of iPhone 6 and 6 Plus sales is simply age.

Apple's installed base of iPhone users is absolutely massive. And for a number of reasons, much of Apple's user base was still using either the iPhone 4 and 4sat the time of the iPhone and 6 Plus' debut. Case in point: An estimated 49% and 69% of American and Chinese iPhone users, respectively, owned either an iPhone 4 or 4s as of last March. And although these percentages will have shifted somewhat in the intervening months, it's widely believed that a significant chunk of these legacy iPhone users will buy one of Apple's new iPhones.

This holiday quarter is always Apple's strongest quarter, and it's a near lock that Apple will surpass the current high-water sales mark of 51 million iPhones that it set in its FY Q1 last year. Estimates vary wildly, of course, but, in general, plenty of analysts believe Apple will sell well north of 60 million iPhones when it reports its upcoming earnings on Jan. 27. Some extremely bullish analysts are calling for more than 71 million iPhone shipments. Again, it's the direction that matters most here, and it's almost universally believed that Apple will smash sales records in its upcoming report. Right now, the average analyst estimate is calling for a roughly 15% increase in Apple's FY 2015 sales. Hopefully, you get the gist by now. This year should be huge for Apple, and the iPhone 6 will likely be the main force driving its growth.

And then what?
This is the real issue that gives me pause when considering Apple's investment merit toward the end of this calendar year, and especially into 2016. In some ways, it's starting to feel like 2012 again. That marked the year of the iPhone 5 and Apple's last smartphone "super cycle." Because of new distribution deals with the likes of Verizon in the U.S. and its compelling new form factor, the iPhone 5 became a smash success for Apple.

However, this resounding success in one year made for an extremely difficult comp-year in the next for Apple, and investors dumped Apple stock en masse from September 2012 to June 2013 as Apple's growth decelerated from 60% in FY Q2 2012 to just 1% in Q3 2013.

AAPL Chart

AAPL data by YCharts

To be clear, I'm not necessarily predicting this will be the case later this year and into early 2016 for Apple stock, for a few reasons.

First, Apple's move into new products and services should help buoy sales, and profits could help offset any decline in year-over-year iPhone sales. I'm not as sold as some analysts on the first iteration of Apple Watch, but I remain convinced the smartwatch category as a whole offers tremendous commercial potential if the devices eventually offer functionalities beyond that of today's smartphones. Also, Apple's push into the connected home, albeit vague at the moment, gives Apple a toehold into what should morph into another mass market in the years to come. We'll have to wait to see what kind of progress Apple can muster in these new product lines during its second-half announcements. The real point is that Apple is quickly working to further diversify its revenue base, which could help cushion an iPhone dropoff.

More good than bad
On balance, there appears to be plenty of opportunity to support continued share price appreciation at Apple in 2015, especially the early part of the year.

Apple's upcoming earnings report on Jan. 27 is likely to be a historic one. There are also less-talked about narratives, such as Apple's capital allocation plan and its booming Mac business, that should also help continue to drive Apple's stock price still upward.

So while Apple's glory days as a triple-digit growth company have long passed it, there are still ample reasons investors will want to consider owning the company in 2015.

The article Best Stock 2015: Apple, Inc. originally appeared on Fool.com.

Andrew Tonner owns shares of Apple. The Motley Fool recommends and owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.