Apple Inc. (AAPL) hasn’t fared well after reporting disappointing iPhone sales and a weaker-than-expected outlook in July. Shares of AAPL stock are down about 12% from their July highs before Apple earnings rocked the boat, and things look like they could get worse in the near term.
In fact, Apple technical analysis and AAPL stock price charts show that the tech giant has dipped below its 200-day moving average for the first time in about two years — a sign that support is crumbling and more declines could be ahead.
But investors in it for the long haul should see this pullback in the Apple stock price as a buying opportunity. AAPL still has a lot to offer and, in my view, is a good buy for investors looking beyond the next few weeks and who are trying to add to their positions for long-term gains and dividend growth.
Yes, Apple’s China sales have softened up with rivals like Xiaomi and Huawei both ahead of the iPhone in market share. And yes, the larger the numbers Apple has, the harder it is to continue to post impressive growth thanks both to tougher comparisons as well as the supply chain challenges that come with its mega-hit gadgets.
But there are worse things in the world than being the dominant consumer technology company on the planet, right?
Here’s why I like AAPL stock as a long-term investment on the current pullback:
Valuation: Apple has a forward price-to-earnings ratio of 11.5 based on 2016 forecasts of $9.77 in earnings per share, and Apple stock has a forward price-to-sales ratio of around 2.6. Given the stretched valuations in many tech stocks, this rather affordable pricing for AAPL stock is a big selling point.
Buybacks: Apple is deploying its cash in a way that will enrich shareholders, spending $90 billion since 2012 on share repurchases. It’s not just the presence of buybacks, either, but the magnitude of Apple’s plan that is noteworthy. Consider how fast the share count has been shrinking lately at Apple, from 6.58 billion (adjusted) at the end of 2012 to 5.76 billion at the end of the fiscal first quarter (the latest data) — a 12%-plus dip in total shares outstanding over roughly three years.
Dividends: Stock buybacks are just part of a $200 billion package to return capital to shareholders through March 2017, including dividends. And that income stream is another thing Apple stock provides that some other sexy tech stocks like Amazon (AMZN) and Google (GOOG) do not. Even if the headline yield of 1.8% or so doesn’t get your motor running, the fact that dividends have increased 37% since being reinstated in 2012 (adjusted for last year’s split, of course) is a good sign future payouts will be significantly higher.
Margins: It’s amusing to me that Wall Street breathed a sigh of relief as Amazon and Google both recently posted improvements in profitability even as AAPL stock was punished for “poor” results. Apple is the king of mobile thanks to its iPhone, reaping a staggering 92% of all smartphone hardware profits while GOOG and AMZN are making much smaller margins on advertising and e-commerce, respectively. I’d much rather take the long-term profitability of Apple than short-term pops based on a rare moment of improvement in margins.
Yes, the charts look ugly right now for AAPL stock. But betting against Apple has been a fool’s errand for the past few years, and I expect this trend to continue.
Over the long term, my money is on Apple’s stock to outperform … even if the past few weeks have indicated the contrary.
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he did not hold a position in any of the aforementioned securities. Write him at firstname.lastname@example.org or follow him on Twitter via @JeffReevesIP.
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