Apple Inc. (NASDAQ:AAPL) needs no introduction, unless you’ve recently thawed out from some remote corner of the world. This past decade that has seen the rise of AAPL stock, which actually began its uptrend during the darkest days of the financial meltdown, averaging annualized growth of 80%.
What’s more, in 2012, when Apple perceived that it needed to provide more shareholder value, it began issuing a dividend. That dividend now stands at 2%, which is certainly nice to have, if not a driving force for buying AAPL stock.
Today, Apple is still about growth; specifically, the next generation of growth. IPods are winding down, the desktop market is fading and even its flagship iPhone is waning in sales relative to the previous models.
This has been the concern from analysts for a while — what engine is going to power growth in Apple stock for the next decade?
AAPL Stock Is in a Good Place
In 2016, Big Tech had a tough year. In the past 12 months, AAPL is off more than 5%. But things are turning around. Now that many Big Tech companies have found ways to pivot and remain competitive in new markets like virtual reality, Internet of Things, data visualization, mobile telecom, etc., tech has made a move.
Shares of AAPL are up 12% in the past six months, and it’s not alone. Big tech looks like it’s going to rally into the end of the fourth quarter at least. And if the holiday sales numbers look good, the rally will continue into 2017. This presents an opportunity right now: AAPL stock remains at reasonable levels and it’s in striking range of my target at $109.
Considering we’re likely to see a rise in rates in December, Apple stock is a good place to be. Most financial stocks will be sliced and diced for the winners and losers of a rate increase, and other sectors (from utilities to home building stocks) could get hit as rising rates hurt their businesses. Tech will deliver since it won’t be affected like these other sectors, spawning a flight to safety as the fallout of a rate increase are sorted out.
Apple stock is cautiously making the pivot to the next generation of users, but considering its notorious cash hoard (once it makes a move in any direction), there is plenty to back a world class effort to introduce the world to the newest tech. Constant pruning of the current business model will also be crucial.
Recently we’ve seen a couple of encouraging signs. For starters, the company intends to stop development of a wireless router to focus on consumer products. Secondly, Apple is cutting its commission on apps sold in its App Store from 30% to 15%. For most apps, the new policy is that Apple will take 30% the first year but only 15% after that, as it hopes to encourage a better customer experience and lifetime value.
On video apps however, the rumor is that Apple Inc. will charge 15% from the get-go. With bigger companies like Netflix, Inc. (NASDAQ: NFLX), which has very tight margins, representing a significant opportunity for AAPL.
The clincher: AAPL stock is currently trading hands at 13 times earnings — that’s a very low bar for growth expectations at these levels. Take advantage.
Richard Band’s Profitable Investing advisory service helps retirement savers outperform the market without losing a minute of sleep along the way. His straightforward style and low-risk value approach has won seven Best Financial Advisory awards from the Newsletter and Electronic Publishers Foundation.
