Flying under the radar

With a market cap of $2.6 trillion, Apple is currently the largest company in the world. But according to investment banking advisory firm Evercore, metaverse could make the iPhone maker significantly larger.

Evercore points out that Apple has been working on virtual reality products for over four years, has more than 100 patents in the field and has made a few metaverse-related acquisitions that have gone largely unnoticed by investors (such as NextVR and SensoMatic).

Evercore expects Apple to launch virtual reality headsets and/or Apple Glass — AR glasses that will bring information straight to your face — in the next six to 12 months.

“We think investors continue to underappreciate AAPL’s potential to innovate and enter new markets where they can leverage and scale AAPL’s unique platform and vertical integration capabilities,” wrote Evercore analyst Amit Daryanani earlier this month.

Daryanani expects Apple’s headset to cost a premium price of $750 or more. If adoption reaches the same level as the Apple Watch, the product “could contribute $18.1B to sales and 19c EPS at scale (~4-5% of current estimates).”

If the product turns out to be as popular as AirPods, Evercore says it could boost Apple’s revenue by $38 billion and EPS by 41 cents.

Evercore is maintaining an Outperform rating on the company and recently raised its price target to $210. With Apple shares currently trading at roughly $160 apiece, that represents upside potential of over 30%.

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A massive installed base

Some might argue that Apple is too late to join the game since there are already several AR/VR products on the market.

But the company has never needed to be the first mover in order to dominate a market.

Case in point: smartwatches. The first Apple Watch was released in April 2015, a time when several big players — including Samsung and Sony — already had smartwatches on the market.

Yet Apple’s product quickly became the best-selling wearable device. And that dominance continues to this day.

According to Counterpoint Research, Apple has a 52% market share in global smartwatch shipments.

Apple wins because of its massive — and loyal — customer base.

In early 2021, management revealed that the company’s active installed base of hardware had surpassed 1.65 billion devices, including over 1 billion iPhones.

Millions of loyal Apple users simply don’t want to live outside of the Apple ecosystem. And when new products come out, they line up to buy them.

That installed base could lead to Apple’s success in the metaverse, too.

A Morning Brew-Harris Poll survey in 2021 showed that 35% of respondents picked Apple as their first choice for an AR/VR device. (And that’s without a product even in the market.)

Safer bet on the metaverse

Apple will never be a pure-play on the metaverse. But that’s exactly why risk-averse investors should consider it.

The company’s current business model is well-established and profitable. Even if Apple’s metaverse endeavor turns out to be less fruitful than expected, you still wind up owning a high-quality, high-growth behemoth that isn’t going anywhere.

In other words, the metaverse is just gravy for Apple.

In the company’s fiscal Q4 ended Sept. 25, Apple generated $83.4 billion of revenue, marking a 29% increase year-over-year. Earnings per share rose by an even more impressive 70% from a year ago to $1.24.

Apple also has a war chest of cash worth roughly $190 billion.

A huge cash pile means the company can return a substantial amount of money to shareholders through dividends and buybacks while investing in the next big thing.

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Looking beyond the stock market

Don’t forget that diversification is key — and you don’t have to stay in the stock market to get it.

If you want to invest in something with high return potential that’s insulated from the violent swings of the stock market, consider this overlooked asset: fine art.

Contemporary artwork has outperformed the S&P 500 by a commanding 174% over the past 25 years, according to the Citi Global Art Market chart. And on a scale of -1 to +1 (with 0 representing no link at all), their correlation was just 0.12 over the past 25 years.

Fine art as an investment

Stocks can be volatile, cryptos make big swings to either side, and even gold is not immune to the market’s ups and downs.

That’s why if you are looking for the ultimate hedge, it could be worthwhile to check out a real, but overlooked asset: fine art.

Contemporary artwork has outperformed the S&P 500 by a commanding 174% over the past 25 years, according to the Citi Global Art Market chart.

And it’s becoming a popular way to diversify because it’s a real physical asset with little correlation to the stock market.

On a scale of -1 to +1, with 0 representing no link at all, Citi found the correlation between contemporary art and the S&P 500 was just 0.12 during the past 25 years.

Earlier this year, Bank of America investment chief Michael Harnett singled out artwork as a sharp way to outperform over the next decade — due largely to the asset’s track record as an inflation hedge.

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About the Author

Jing Pan

Jing Pan

Investment Reporter

Jing is an investment reporter for MoneyWise. Prior to joining the team, he was a research analyst and editor at one of the leading financial publishing companies in North America. An avid advocate of investing for passive income, he wrote a monthly dividend stock newsletter for the better half of the past decade. Jing holds a Master’s Degree in Economics and an Honours Bachelor of Science Degree, both from the University of Toronto.

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