Apple Inc. (NASDAQ:AAPL) shareholders have done okay in 2016, despite harsh publicity and a recent pullback since missing on earnings last month.
For the year, the Apple stock price is up 6.6%, and investors have pocketed dividends that yield 2.1% at current prices. If you bought shares before its 2013 stock split (as I did), you’re in luck.
Still, there are plenty of complaints: The computers are no longer cutting-edge, some say; they canceled the next low-cost phone; the people want their headphone jacks back. Some technicians see Apple stock being cut in half over the next two years.
To all this, the company’s management seems to have a simple four-word response: Don’t worry, be happy. Apple believes it knows where it’s going, it sees ample opportunity for profit growth, and all systems are go for launching into its new “spaceship” campus in about two years.
The Apple Stock Bull Case
Apple insists its new MacBook laptop is a runaway hit. Senior vice president for marketing Phil Schiller says there are more orders for the MacBook Pro than any other MacBook model, ever.
The version without a Touch Bar, a new interface mechanism that sits above the keyboard, got terrible reviews, but early hands-on reviews of units with the new interface are promising.
The latest earnings report shows that Apple has also made a successful turn toward cloud-based services. After spending billions of dollars on new data centers, the company is now drawing 13% of revenue from things like Apple Music, App Store sales and iCloud subscriptions. That’s more money than comes in from the Macintosh or the iPad, and it’s not seasonal, as product revenue is. It’s also enormously profitable.
The success of services in paying for Apple Cloud should also help it pick up business service customers, independent of its alliance with International Business Machines Corp. (NYSE:IBM), which is now worth barely one-fourth what Apple stock is and could become the big takeover story of 2017.
The AAPL Bear Case
Despite this there remain plenty of Apple bears, and the stock continues to trade at just 13 times earnings, well below market multiples. Apple seems to have canceled the iPhone 7SE, its budget phone, in favor of refurbishing old phones and reselling them.
Despite the success of the MacBook Pro, Apple appears to be de-emphasizing the whole concept of PCs in favor of new mobile devices. But if that’s so, where are the new iPads?
Even the service story comes with a potentially negative twist. Counterfeit and even malicious apps are turning up in the App Store following a streamlined app approval process. People who bought into Apple stock because of its “walled garden” strategy are becoming angry, and Apple’s claim that it now has an “automated, streamlined process” isn’t helping.
Bottom Line on Apple Stock
All tech stocks are going to be under pressure over the next several months on rumors of what President-elect Donald Trump may do. Apple CEO Tim Cook is gay, most tech companies favored his opponent and most Trump support came from other industries. But the U.S. market is not the world.
Apple has learned to get along with many kinds of regimes, even succeeding in China. There remain many markets where smartphone penetration is small. The company’s moves to re-sell old phones will bring millions of people into its ecosystem who could not afford earlier phone models.
You can expect growing service revenue, you can expect new iPads soon, and Apple is not done innovating. It has the biggest moat and the biggest budgets in the industry, in any industry.
Apple stock faces a rocky road in the short term, but I wouldn’t sell it.
Dana Blankenhorn is a financial and technology journalist. His latest novel is Bridget O’Flynn vs. Something Big & Ugly. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing, he owned shares in Apple stock.
