Some Interesting Titbits About Stocks For Apple
Within the first month of 2019, the economic media was already writing Apple off as a technology giant in turmoil, and Apple stock fell 10% in the first few days of trading.
What a huge difference 11 months have made. By very early November, Apple stock was up 57% on the year, near a 52-week high, and its latest quarterly results surpass everyone’s hopes for both income and earnings per share (EPS).
Clearly, Apple (AAPL) stock would have been a very good buy at the start of the year. What about today? And, more generally, exactly what are the greatest issues and themes that investors should monitor before figuring out how Apple should fit into their portfolios?
Knowing Apple Stock’s History: Quick Snippets For You
Although Apple’s already been a big winner for many investors, the stock creates its own headaches, because usually, a smart investor would likely trip their holdings as it grows bigger and bigger. The issue is that selling Apple at any price (up until just recently) has become a huge mistake.
Allow me to share some basic facts about Apple stock:
- Apple is the biggest stock in the S&P and has been the largest market weight in the S&P since 1986.
- Apple will most likely surpass Exxon as the top-earning stock by the close of the year.
- 9% of S&P trading volume is Apple, which is the highest of any stock since 1982.
- 26% of all significant hedge funds hold Apple positions that are greater than 1% of their portfolios.
- One out of 25 of all hedge funds has 10% or more of their portfolio in Apple.
- Almost no other stock correlates easily with Apple.
- Apple cannot correlate very well with any remaining area of the market (e.g. mega caps).
- Profits tend to be big movers for the stock, whereas product announcements are not that big a deal for Apple’s stock.
- Apple is quite negatively correlated with the euro.
Another thing which is interesting is that most experienced investors would suggest against attempting to create a basket of related stocks, as they have been unsuccessful at performing as well as Apple, and the baskets call for constant rebalancing.
Five more facts about stocks for Apple
Fact 1: Apple had $268 billion in foreign cash as of the end of December 2018. After it paid the 15.5% repatriation tax, it had $244 billion in cash and investments on its balance sheet set to be assigned as it saw fit.
Its cash stash is greater than the market cap of all except 14 companies in the S&P 500, which is an advantage that any CEO would absolutely love to have.
Fact 2: The overlooked segments of Apple’s business are developing a bit of a comeback. Even though revenue and units of Macs sold in the first quarter of 2018 fell somewhat, 2017 was a different story, providing a 13% increase in revenue year over year to 4% additional units.
Let’s not put aside what brought Apple to the party:
Fact 3: If you bundle its Services revenue – iCloud, Apple Music, iTunes, etc.– with its remaining products revenue – Apple TV, Apple Watch, Beats products, etc. – you have a business that increased its revenue by 25% in the first quarter of 2018 to $14 billion.
From an annualised perspective, these two portions of its business, if operating as an independent company, could be the 51st largest company in the Fortune 500.
The more intangible portion of Apple’s business continues to drive its success.
Fact 4: The first quarter of fiscal 2018 watched Apple provide double-digit year over year revenue growth in all five of its geographic segments, an accomplishment that has mostly been overlooked.
Is that a sign of a global economy performing fairly well or Apple performing at an exceedingly streamlined level? I’m going with the latter option.
Fact 5: Angela Ahrendts was very busy in 2017, remaking the Apple stores into town squares, a shift both loved and disliked simultaneously. I couldn’t care less about what it does when it comes to retail as long as it allows buying goods to be an easy and satisfying experience.
At $5,546 in sales per square foot, without a doubt, the best number in the industry of retail, Apple’s stores have come to be the advertising and marketing arm of the whole company. Without having retail stores, Apple is simply another electronics maker.
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What’s Been Happening With Apple Stocks More Recently?
Five times in the month of October, Apple stock hit a record high, with shares rallying thanks to anticipation from Wall Street analysts, better than estimated iPhone 11 sales, and the impending release of the new Apple TV+ streaming service.
- Stocks for Apple, which currently trades at $243 per share, is up more than 50% to date this year and over 100% in the past three years. The company’s market value has hit almost $1.1 trillion.
- In October 2019, Morgan Stanley upgraded their price target for the stock to $289, stating estimates that Apple TV+, which launched just last month, could possibly generate $9 billion per year in revenue by 2025.
- Outside Apple TV+ boosting Apple’s Services business as high as 20% next year, Morgan Stanley analyst, Katy Huberty, also predicts a return to growth for iPhone sales – spurred by the success of the iPhone 11, which Apple CEO Tim Cook has said is off to a “very strong start”.
- Earlier in October, Raymond James analysts forecasted that Apple shares could rally an additional 20% this year, because of higher prices for new iPhones on top of growth possibilities in 5G.
- Apple stock initially shattered its earlier all-time high in the month of October, thanks mainly to increased hope about trade discussions with China, since the iPhone maker has long counted on China as a core production base.
- Including the new maximum of $243 per share set in October, Apple has now established five new all-time high records – on October 10, October 11, October 18, October 21 and October 23 – according to FactSet data.
Interesting fact: Regardless of growing votes of confidence from Wall Street lately, there are still some doubters in the market. Based on Bloomberg data, 52% of analysts say “buy”, 35% say “hold” and 13% say “sell”.
Something to look back at: fourth-quarter earnings, which Apple reported at the end of October. Revenues in that period were expected to increase to about $63 billion, a noticeable boost from $53.8 billion last quarter.
What Do Experts Think About Buying Apple Stocks?
The world’s most widely known investor isn’t a big buyer of technology stocks. The truth is, he’s publicly stated he made a mistake by not previously buying Google and Amazon.com shares. On the other hand, he acknowledged making a mistake in analysing IBM, in which he only recently held a big share.
Nevertheless, when Warren Buffett notices a good deal, he’ll dive in with gusto. Buffett’s investment company, Berkshire Hathaway, openly shared that it took its first bite of Apple on May 16, 2016, when the stock stood at around $92.
Berkshire bought a great deal more than $10,000 worth of Apple. If you had shadowed Buffett’s lead, your investment would certainly have more than doubled in just two years, returning 113%.
Apple has been on a massive good streak recently. All of the bearishness that preceded the latest iPhone launch set the company up for a very good run. The stock is up an astounding 65% this year. To set that $450 billion of value appreciation into a prospect, it is similar to adding the market caps of SalesForce, IBM, and SAP on top of what Apple already was at the finish of 2018.
So exactly where does it go from here? The truth is, Apple normally continues a big upswing after an iPhone launch, so history is on its side right now.
Shares of Apple rallied last month, as the sudden run-up in pricing this year didn’t prevent some Wall Street analysts becoming even more bullish on the technology monster, citing optimism over the prospect of iPhone sales and the ‘underappreciated’ opportunity in marketing.
Apple’s stock rose 1.2% to close at its seventh record last month and make the eighth consecutive week of gains.
The shares AAPL, -0.08% have sky-rocketed 68.5% this year, which will make Apple the most valuable U.S. company with a market cap of $1.18 trillion, over second-place Microsoft Corp. MSFT, -0.11% at $1.14 trillion.
That stock’s increase hasn’t discouraged analyst Dan Ives at Wedbush from saying there’s a lot more space for gains. He reiterated his outperform rating and increased his stock price target to $325, from $3000, which is about 22% over existing levels. His target is now the highest of the 43 analysts questioned by FactSet.
“While shares are up [more than 65%] year to date, we believe the tech stalwart is still in the midst of a renaissance of iPhone growth heading into 2020 that will further catalyse the stock higher as it gets re-rated from the Street”, Ives composed in a notice to clients.
Pros to Buying Stocks For Apple
Cash for buybacks, dividend, and R&D. The appeal of cold, hard cash is difficult to overstate sometimes, and in previous years, Apple’s massive cash stash has climbed to absolutely legendary levels. By the end of September, stocks for Apple had about $206 billion in cash and investments – funds it regularly returns to shareholders using stock buybacks and dividends.
At the moment, Apple’s 1.3% dividend yield is reasonable but still nothing to laugh at, especially considering the company has set the precedent of increasing its payout yearly since first offering the quarterly regular payment at the command of shareholders in 2012. Ever since then, Apple’s quarterly dividend has doubled, from a split-adjusted 38 cents a share to 77 cents a share today. Investors should certainly expect an additional increase in May 2020.
Another reason CEOs should admire Tim Cook is that, often, he can easily impact EPS numbers through significant stock buybacks, an approach Cook was not afraid to use last quarter. The company bought back $18 billion worth of AAPL stock throughout the period, which permitted the company to announce a record-high EPS number for the September quarter, even though net profit itself actually dropped year over year.
Services sector development. Perhaps the leading point of enthusiasm for Apple shareholders today can be unmistakably seen in Apple’s earnings report. The Services sector posted record quarterly revenue, up 18% from 12 months ago, to $12.5 billion last quarter.
Services, that also includes plenty of Apple’s hit software products like iTunes and the App Store, are a higher-margin role for Apple’s business, implying more earnings drop down from the top to the bottom-line.
AAPL is on course to double Services’ earning between 2016 and 2020, and Apple’s installed base of active devices – which Services revenue is a part of – should probably manage to set at all-time highs. There are presently about 1.5 billion installed devices globally.
An almost impossible moat. The achievements identified in the Services segment is a unique side of a better advantage enjoyed by Apple, which happens to be the so-called ‘network effect’, a type of extended competitive advantage that investors look for when searching for stocks that are created to succeed over the long term.
The idea that Apple can quickly release new software and services to almost 1 billion active iPhone users, and millions of other Apple devices, is a self-perpetuating pattern that helps to practically guarantee Apple will continue to thrive.
The more people use Apple products, the more time developers spend making fun and practical apps to go in the App Store, which then keeps consumers on the platform and appeals to new ones.
The smooth integration between Apple devices that have helped to create a cult-like fan base of loyal users is very hard to duplicate and makes changing away from Apple a bit of a pain. Give consideration to all the customised hardware, chargers and wearables that are worthless with other manufacturers, and Apple has introduced financial perks for customers to stay loyal.
The Cons To Buying Stocks For Apple
iPhone on the decline; poor numbers last quarter. The very first ‘con’ to buying AAPL is pretty clear: the iPhone is not necessarily the unbeatable growth engine it used to be. The truth is, iPhone sales are decreasing, and with the smartphone still producing more than 50% of the company’s revenue, there’s massive stress on Apple to broaden its revenue streams and develop other divisions fast.
For a worst-case case study, think about the BlackBerry (BB) phone, which, previously a smash hit product, quickly passed into darkness as it got surpassed by… you guessed it, the iPhone. Shares of the company moved from about $130 each to just $7 in a three year period.
Could there be any such single competitor threatening to turn the iPhone into the next BlackBerry? No impending danger seems apparent today, but although Apple’s environment does help protect it from this danger, the point is that technology is a fast-shifting landscape and changes can be fast and unforgiving.
Even without having a single noticeable danger on the horizon, iPhone revenue dropped 9.3% last quarter, and unit sales failed to achieve analyst estimates.
Is content a good idea? Capital allotment decisions. Apple TV+, the company’s streaming service, launched. It is ranking itself as an affordable alternative to Netflix (NFLX) and the growing list of newer competition in the area, and for a per-month fee of just $4.99, it undoubtedly is on the inexpensive side of the streaming TV marketplace.
Having said that, Apple doesn’t have very much content and definitely doesn’t have much-proven content. How much Apple has invested in Apple TV+ so far isn’t completely clear, but what is evident is that it most likely wasn’t cheap: the streaming struggles have created a ripple in the price of the Entertainment talent required to produce high-quality original content, and if AAPL expects to hold a candle to the Disney (DIS), Netflix, Hulu and Amazon.com (AMZN), it will have to agree to spend billions yearly to do so.
There are two sides to this coin, obviously. Apple does need to branch out its revenue, and using Apple TV+ as an extra motivation to buy into the company’s environment could also be wise. Apple does plan to provide a free year of the streaming service for everyone buying new Apple devices, and that’s an intriguing strategy.
However, with $200 billion in cash on hand, rates are extremely low, and with iPhone sales winding down, AAPL should be making more ambitious moves to reach lasting growth. Alphabet (GOOG, GOOGL) has just purchased wearables company Fitbit (FIT) with some of its extra cash. AAPL should follow suit, but think larger: at Netflix’s current valuation ($125 billion), Apple could possibly make a persuasive offer to buy all of Netflix at a premium that NFLX shareholders would be compelled to consider.
Something like that could push the needle far more promptly than the Apple TV+ initiative will.
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