There’s no sugar coating it — the first half of the year was brutal for most multinationals. For the first quarter, S&P 500 earnings grew at a 0.7% annual rate, the slowest since Q3 2012. And the second quarter is looking even worse, with S&P 500 earnings projected to fall 4.7% over last year.
The good news is that this environment is great for stock pickers, particularly those who select stocks with strong sales and earnings forecasts, modest valuations and robust stock buyback programs. Apple (AAPL) continues to fit the bill.
Every few months, Apple reveals a new gadget, operating system or app to connect users in new and inventive ways. Since I last covered Apple in April, it has unveiled OS X El Capitan, a new Mac operating system and the iOS 9 operating system for the iPhone and iPad. AAPL has refined its Apple Pay system, updated the Apple Watch software and launched Apple Music, a music streaming service. And that’s not even mentioning the updates Apple has made to its MacBook Pro and iMac computers.
Apple Earnings Proved the Strength of AAPL Stock
AAPL’s most recent quarter was the best March quarter in Apple’s history, with iPhone, Mac and App Store sales leading the way. Apple sold 61.2 million iPhones last quarter, a 40% increase from a year ago. Apple also sold 4.56 million Macs, which marked a 10% increase over last year. Company-wide sales jumped 25% to $58.01 billion, while net income increased 33% to $13.6 billion, or $2.33 per share. This was the fifth quarter in a row that Apple increased earnings.
And there’s plenty more where that came from. Looking ahead to the third quarter, analysts expect Apple to post 29.8% sales growth and 37.5% earnings growth. Forecast earnings growth for the electronic equipment industry is just 0.4%.
Apple also recently reaffirmed its commitment to shareholders, increasing its shareholder reward program by more than 50% to $200 billion. Apple now plans to repurchase a total of $140 billion of its stock. In addition, the board of directors approved an 11% increase to its quarterly dividend. At current prices, AAPL has a 1.6% annual dividend yield.
Taylor Swift notwithstanding, it’s difficult to find anything negative to say about Apple. This gadget giant is successfully selling everything from smart devices to music streaming and payment services. So, despite currency headwinds, Apple is sustaining double-digit sales and earnings growth and breaking company records. Flush with cash, Apple is returning $200 billion into the pockets of shareholders between stock buybacks and dividend payments.
All the while, this stock is trading at an attractive valuation. While the stock has increased nearly 17% year-to-date, AAPL trades at just 13 times forecast earnings. The average forward P/E for the S&P 500 is 17.
Given the company’s continued strength and the impending releases of new mobile devices, AAPL remains my top stock pick for 2015.
Louis Navellier is the editor of Blue Chip Growth.
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