The Apple of My Portfolio

 | Sep 26, 2013 | 1:00 PM EDT
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I have been building up a position in Apple (AAPL) all year including adding a few more shares after the selloff triggered by the disappointing unveiling of the new versions of its iconic iPhone franchise earlier this month. The giant from Cupertino now accounts for the largest allocation to any one stock in my portfolio.

I post frequent updates on significant Apple events in the Columnist Conversation section on the Real Money homepage, but I rarely cover the company in my columns. I prefer to highlight smaller and lesser known names that have solid capital appreciation potential or offer significant yield and dividend growth. In addition, usually there is not a lot of value to add by providing insights on Apple, given it is the most widely followed and commented stock in the investing universe.

However, I am going to spend today's column discussing the company. It has been just over a year since the stock hit an all-time high of about $705 a share. The following 12 months has mostly consisted of misery for Apple shareholders who bought in at those high levels. Fortunately, it seems the company's fortunes are finally turning and solid gains look likely in the months ahead.

The launch of the 5c and 5s versions of the iPhone are among the key catalysts that should give Apple stockholders solid hope for better days ahead. Although the new versions of the iPhone did not generate much enthusiasm when they were first unveiled a little over two weeks ago, the initial sales have exceeded even the most optimistic projections.

The two new iPhone versions sold 9 million units in the first weekend of their launch. To put that in perspective, the high estimate from analysts called for 7.75 million units to be sold in that time frame with most estimates in the 5 million to 6 million range. The original iPhone 5 sold 6 million units in 10 days. As importantly, the company came out and said its fourth-quarter gross margins and revenues would be at the high end of previous guidance.

Falling margins have been one of the primary targets for Apple pessimists. With the guidance and blowout initial sales figures, analysts cannot get out their own way fast enough to upgrade the shares, raise their price targets and upwardly revise their earnings estimates on Apple. To cite one example, Susquehanna just raised its rating on the stock to a Buy and revised its price target from $440 a share to $625 after the company's first weekend of sales and its updated guidance.

With all the excitement about the blowout numbers for the new iPhones, a couple of other positive catalysts have been missed by most investors. NTT Docomo (DCM) will now carry the iPhone in Japan. This provides Apple with another 60 million of high-income, tech-loving subscribers to sell to in one of its most important markets. In addition, the company bought back $16 billion worth of stock in the most recently reported quarter.

Apple accounted for more than 13% of all stock bought back in the second quarter. The company had authorized a $60 billion buyback program earlier this year that was to run through 2015, but this is a much more accelerated repurchase execution plan that I believe most were expecting. This huge retirement of float should also start showing up in refactored earnings estimates.

The tea leaves also seem to aligning for a deal with China Mobile (CHL) and its 740 million subscribers. This would obviously be a huge positive for both companies. Finally, there are substantive rumors that the next iteration of the iPhone, scheduled for launch in 2014, will have at least one version with a bigger screen. This should boost sales further. For an author whose eyes are not what they once were, I would consider this to be a very happy development.

Despite these positive developments and upward earnings revisions, Apple is priced at around 8x forward earnings -- after you subtract its huge cash hoard from the equation. I don't think it will be long before the company solidly puts $500 a share in the rearview mirror for good.

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