Apple Inc. (AAPL) Stock Is a Great Buy … If You Wait


Apple, Inc. (NASDAQ:AAPL) is on every investor’s mind. It remains one of the premier companies as well as one of the premier stocks. While I haven’t been thrilled with Tim Cook’s stewardship of the company since Steve Jobs passed away, he has been an effective game manager. That’s been enough to carry AAPL stock forward. The question is what does the future hold?

To put the future of Apple stock in context, I want to just scoot through some highlights from Q2 earnings.

First, selling 50.7 million iPhones is pretty staggering. That tells me that consumers all over the world still love the product, and will likely continue replacing older ones as new phones come out. Active installables grew double digits.

I’m not crazy about the fact that this still accounts for about 60% of AAPL stock revenues, but we are seeing Apple start to pick up revenue in other segments, and it’s less than the 70% of a couple of years ago.

What Earnings Mean for AAPL Stock

Selling almost 9 million iPads and 4 million computers also tells me that AAPL products continue to meet the standards demanded by a lot of people. I do see some problems in that unit sales for iPhones and iPads declined year-over-year.

AAPL stock also enjoyed the benefits of increasing services revenue, topping $7 billion, or around 13% of revenue. The App Store numbers are also encouraging with revenue exploding 40% YOY as the number of developers increased 26%. What I love about the App store is that there will always be nifty ideas and life hacks and all kinds of things that anybody with a brain can imagine, and developers will make it happen. Demand should be robust here for some time.

Subscription revenue is important, and I like the direction of Apple Music and iCloud, especially with 165 million paid subscriptions!

Again, this is all fine game management. It’s not visionary, though, and that is of some long-term concern. Apple needs innovation and I don’t think Cook is the guy for that. You know, revenues were only up 4.5% YOY. Operating income barely budged, up less than 1%, and net income only trickled up about 5%.

Now, that doesn’t speak to the $12.5 billion in operating cash flow generated in the quarter, or the nearly $173 billion in cash that AAPL has hidden overseas. With President Trump talking more seriously about a tax holiday, that money could mean a huge difference for Apple stock and shareholders. If that money gets repatriated, I think we will see some kind of large accretive acquisition that generates new growth for the company.

Bottom Line on Apple Stock

Going forward, AAPL guided to the following for Q3: Revenue between $43.5 billion and $45.5 billion; gross margin between 37.5% and 38.5%; operating expenses between $6.6 billion and $6.7 billion; and other income of $450 million.

Again, these numbers are just fine. The problem is that they are just fine. Apple stock has soared over the past year on renewed optimism, but how long will that keep up?

So when we back out the net cash of $33 per share, we find AAPL stock to be trading at $114 per share, or about a $600 billion market cap. So the stock trades at around 13x net income. However, with net income only growing 5%, and even adding in premiums of 10% each for brand name, cash flow, and cash on hand, the stock seems expensive to me right now.

I want to see this overpriced market experience a really hard correction of 20% or more. If I can get AAPL stock below $115, then I would be all over it. So I’ll wait.

Lawrence Meyers is the CEO of PDL Capital, a specialty lender focusing on consumer finance. As of this writing, he did not hold a position in any of the aforementioned securities. He has 22 years’ experience in the stock market, and has written more than 1,600 articles on investing. He also is the Manager of the Liberty Portfolio. Lawrence Meyers can be reached at

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