Apple (AAPL) stock has been one of the best investments of the last decade, even if it has been overshadowed as of late. Heck, Google (GOOG) stock is celebrating its 10-year anniversary with a 1,000% gain, which is amazing — unless you’re measuring it against Apple’s stock price.
Indeed, AAPL has beaten GOOG by several thousand percentage points over the past 10 years, but past performance is not indicative of future returns. So, can we expect the Apple stock price to keep generating those sorts of gains?
Keeping up that pace will be tough. After all, although there’s no rule that says a company with a market cap of $600 billion can’t, say, double given enough time, the law of large numbers is very much working against it. Even after a 7-for-1 split, the Apple stock price of nearly $100 is too high for many retail investors to swing.
More worrisome is that AAPL has been rising lately in anticipation of the launch of the iPhone 6. It’s such an obvious trade, how can all the good news not be baked in already? After gaining 24% for the year-to-date, Apple stock looks ready to sell off once iPhone 6 lands.
To get a sense of whether AAPL is a buy or a sell, let’s look at some of the pros and cons:
Apple Stock Pros
Hearts and Minds: OK, maybe there’s something wrong with a list that ranks Microsoft (MSFT) at No. 2, but AAPL is the world’s most valuable brand, according to Forbes. Any MBA can tell you how to grow revenue and cut costs, but building a brand as valuable as Apple takes something special. AAPL’s brand guarantees a large constituency that will buy anything with the Apple logo slapped on it.
Valuation: The Apple stock price is sitting around $100 a share, and it’s beating the S&P 500 by about 18% for the year-to-date — but it still looks like a bargain. Apple stock goes for just 14 times forward earnings, which is cheaper than the broader market despite having much better growth prospects. Indeed, the S&P 500 is forecast to grow less than 10% a year for the next five years, and Apple stock’s long-term growth is pegged at more than 12%.
Cash: Even after initiating a dividend and buying back massive amounts of AAPL stock, Apple still is sitting on a tremendous pile of cash. At the end of the most recent quarter, AAPL had nearly $37 billion in cash, cash equivalents and short-term investments. While some market minds use other investments to come up with even crazier number for Apple’s cash, even by conservative accounting, it’s clear that AAPL plenty of ammunition to make any restive shareholders happy with a dividend hike or bigger buyback.
Apple Stock Cons
Innovation: It’s impossible to measure what the loss of Steve Jobs means for Apple over the longer haul. CEO Tim Cook gets high marks for his stewardship of Apple, but no one mistakes him for a visionary like Jobs. Heck, few people have Jobs’ uncanny sense of what consumers want. The Apple stock price reflects innovation, as it has grown on the backs of the iPod, iPhone and — until recently — the iPad. Without Jobs, what will Apple create next?
iOS: Apple’s iPhone lineup running the iOS operating system is arguably the best combination of hardware and software to be found in any smartphone anywhere, but AAPL locks iOS to iPhone only. So, Google’s free Android operating system is now far and away the world’s market leader. That hasn’t mattered yet, but could come back to haunt Apple. Is Apple making the same mistake with iOS that it made with Microsoft back in the early PC age?
iPad Exhaustion: As mentioned above, Apple created an entirely new category of consumer electronics when it introduced the iPad, and iPad sales were expected to be a major driver of growth going forward. However, stumbling iPad sales are worrisome, and competition from cheaper, Android-based tablets and phablets are to blame. The Apple iPad is arguably the best tablet on the market, but that might not matter.
Apple’s stock price could very well fall in the immediate aftermath of the iPhone 6 launch as traders “buy the rumor and sell the news.” There’s only so much upside the new handset justifies, and much, or all, of the moves look to have been made already.
Beyond that hiccup, however, Apple stock is a buy. Apple has the best brand not only in tech, but in the world. Apple’s days of innovation are likely not over. Even if it has to copycat, the quality of Apple’s products and brand loyalty ensure success in almost anything it does.
Finally, there’s the valuation, which remains compelling. Apple hasn’t received a premium price-to-earnings ratio since Jobs passed away. If the iPhone 6 is as big as some analysts imagine, Apple stock could finally get the multiple it deserves.
Any way you slice it, Apple stock is a buy.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.