Like most stocks, 2018 hasn’t been kind to Apple Inc. (NASDAQ:AAPL). AAPL stock is down 2.5% year to date through Feb. 13, 232 basis points worse than the S&P 500.
Coming off a year in which it delivered a nearly 50% annual return, investors had high hopes for AAPL stock heading into the new year; thanks to lackluster sales of the iPhone X, momentum has come to a screeching halt.
Buy or Sell?
Investors are asking themselves whether AAPL stock is a buy or sell at $165 and change.
I’m one of those who are positive about Apple’s future and have been for some time. In October, I made a wildly overenthusiastic call that AAPL stock would hit $200 and a $1 trillion market cap by Thanksgiving.
The closest it got was $180.10 on January 18. It’s lost about 10% of its value since then.
iPhone X a Disappointment
While the iPhone X hasn’t met analyst expectations so far regarding units sold, it still performed better than any other smartphone over the holidays with approximately 29 million iPhones shipped in the fourth quarter — analysts were expecting between 30-35 million — pushing Apple’s revenues higher thanks to the $999 retail price.
“The idea of an iPhone “supercycle,” where a new gadget opens a floodgate of demand, seems highly unlikely this year after the tepid results immediately after the iPhone X launch,” recently wrote InvestorPlace executive editor Jeff Reeves in Marketwatch. “However, it’s not crazy to think that we will see a modest but sustained growth cycle over 2018 — and perhaps 2019 and beyond — that will show Apple still has something to offer.”
I couldn’t have said it better myself.
Singles and Doubles
Apple investors are just going to have to get used to the fact that the company won’t hit $1 trillion in market cap with a home run but rather by singles and doubles.
These five facts are the singles and doubles Apple will use to grow its stock to $200 and beyond.
Fact 1: Apple had $268 billion in foreign cash as of the end of December. After it pays the 15.5% repatriation tax, it will have $244 billion in cash and investments on its balance sheet ready to allocate as it sees fit.
Its cash hoard is greater than the market cap of all but 14 companies in the S&P 500. That’s an advantage that any CEO would love to have.
Fact 2: The forgotten segment of Apple’s business is making a bit of a comeback. Although revenue and units sold of the Mac in Q1 2018 dropped slightly, 2017 was a different story delivering 13% growth in revenue year over year to 4% more units.
Let’s not forget what got Apple to the dance.
Fact 3: If you combine its services revenue — iCloud, Apple Music, iTunes, etc. — with its other products revenue — Apple TV, Apple Watch, Beats products, etc. — you get a business that grew revenue by 25% in Q1 2018 to $14 billion.
On an annualized basis, these two segments of its business if operating as a separate company would be the 51st largest company in the Fortune 500.
The more intangible part of Apple’s business continues to drive its growth.
Fact 4: The first quarter of fiscal 2018 saw Apple deliver double-digit year-over-year revenue growth in all five of its geographic segments, a feat that’s largely gone unnoticed.
Is that a sign of a global economy performing relatively well or Apple executing at an extremely efficient level. I’m going with the latter.
Fact 5: Angela Ahrendts was busy in 2017 remaking the Apple stores into town squares, a move loved and hated all at once. I couldn’t care what it does when it comes to retail as long as it makes buying products and easy and enjoyable experience.
At $5,546 in sales per square foot, by far the best number in the world of retail, Apple’s stores have become the marketing arm of the entire company. Without the retail stores, Apple is just another electronics manufacturer.
Bottom Line on AAPL Stock
It might face some headwinds in 2018, but overall, I see a very healthy business that should hit $200 by December. It’s a buy-and-hold stock if there ever were one.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.
