On December 17, 2012, I recommended Apple (AAPL) to my subscribers.
The recommendation appeared in Hidden Values Alert, a predecessor to American Prosperity Report.
Apple traded for about $15 per share on a split-adjusted basis. Tim Cook had officially become CEO only 16 months earlier.
Mr. Market had serious doubts about both Apple and Cook.
Tim Cook took over Apple in 2011 and spent the next 15 years making an extraordinary business even more valuable.
Source: Photo: Tessa Bury / Wikimedia Commons, CC BY 4.0. Cropped from original.
Steve Jobs had built one of the greatest companies in American history. Investors wondered whether Apple could remain exceptional without him.
Many believed Apple’s greatest days were already behind it.
I saw something very different.
Apple still had one of the world’s strongest brands. Its customers were fiercely loyal. Its products were becoming deeply embedded in everyday life.
The business generated enormous cash and possessed powerful competitive advantages.
Cook did not need to become another Steve Jobs. He needed to make a great business even more valuable. That is exactly what happened.
Since our recommendation, Apple shares have soared more than 1,900%.
That gain offers a powerful lesson about the importance of management.
Great CEOs Make Great Businesses Better
Investors spend enormous time studying products, markets, earnings, and valuations. All of those things matter.
But the person running the company can matter just as much.
Great CEOs decide where billions of dollars get invested. They choose which opportunities deserve capital and which should be ignored.
They decide whether cash gets reinvested, returned to shareholders, or spent on acquisitions. Over many years, those decisions can create enormous shareholder wealth.
Cook proved especially skilled at strengthening Apple’s existing advantages.
He transformed services into a major source of recurring revenue. Apple Pay, iCloud, Apple Music, and the App Store became important businesses.
Apple’s services revenue has climbed from about $24 billion in 2016 to more than $117 billion today.
He pushed Apple toward designing more of its own chips. That gave Apple greater control over performance, costs, and product development.
Apple’s gross margin stood near 40% when Cook took charge. Today, gross margins are close to 50%.
That improvement becomes enormous across hundreds of billions in annual sales.
Cook also returned vast amounts of capital through share repurchases. Those purchases reduced Apple’s share count over time.
Each remaining share represented a larger ownership stake in the business.
Cook certainly did not get everything right. Apple abandoned its automobile project. Some newer products never became major businesses.
The company has also faced criticism for moving slowly in artificial intelligence.
Great CEOs do not need perfect records. They need to make enough intelligent decisions to keep increasing business value.
Cook accomplished that for 15 years.
Why Management Matters to Our Alpha-4 Approach
This is why management sits near the center of our Alpha-4 Approach.
We are not buying ticker symbols. We are becoming passive owners of businesses.
Those businesses are run by people making important decisions every day.
Poor leadership can weaken even an outstanding company. Exceptional leadership can make a powerful business even stronger.
That is exactly what happened at Apple.
When we recommended the shares in 2012, Mr. Market focused on uncertainty. Investors saw a company that had lost Steve Jobs.
We saw a great American business with extraordinary competitive advantages. We also saw a CEO capable of building upon them.
More than 1,900% later, the lesson is difficult to ignore.
America continues producing exceptional businesses led by talented executives. They innovate, invest, create jobs, and build lasting shareholder wealth.
That remains one of the great engines of American prosperity. Our job is finding those businesses while their best years remain ahead.
When great management meets a great business, the results can be extraordinary. Tim Cook proved that at Apple.
Thank you, Tim Cook, for the tremendous value you created for Apple’s customers, employees, and shareholders.
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Regards,
Charles Mizrahi
Prosperity Insider
