A stock market correction has a habit of revealing bargains, the way a falling tide may reveal sunken treasures in the mud. Apple Inc. (NASDAQ:AAPL) is looking like one of those bargains.
At its Feb. 9 opening price of $155.50, AAPL stock is selling for less than 16 times earnings, and while it has now gone ex-dividend, you should still get that 63 cents per share dividend (or more) this spring, yielding 1.62%.
Despite what was termed a disappointing quarter, Apple is still growing. Its sales of $88.2 billion in the fourth quarter were up 12% from the $78.3 billion of the same quarter the year before. The percentage of sales that went to the net income line, 23%, was even higher than a year earlier.
Then there is all that cash — $163 billion going into stock buybacks, dividends and acquisitions. Even after that, the company will still have the capability of writing a check to pay off its $122 billion in debt, if that were needed.
Apple covers its dividend with income by nearly four times over, meaning there is plenty of room for another permanent hike. The cash being repatriated comes to a whopping $32 per share.
Bret Kenwell calls Apple “the safest stock” to buy on the current pullback. Bank of America Corp. (NYSE:BAC) agrees . The February losses dropped it another 2.75%. Since the start of February, Apple is down 7.3%, while the NASDAQ is down 8.5%. Apple was last selling at these prices in late October.
That’s not to say Apple, and the market, can’t go lower. At the end of trading Feb. 8, the average S&P 500 stock was trading at a multiple of 24.1. That is high by historical standards. With interest rates higher, rising dividends like those at Apple become less interesting, and growth no longer draws the premium it once did.
The question now becomes, what can Apple do from here?
Apple’s fourth quarter report included $8.5 billion in service income. This makes things like the iCloud and Apple Music its second-largest business, behind only the iPhone. It is also Apple’s fastest-growing business, rising 34% year over year.
It’s services that make the launch of HomePod, the company’s answer to Alexa from Amazon.Com Inc. (NASDAQ:AMZN), so important. Apple is late to the market, as it often is, but it will likely be able to sell the HomePod as a more private, safer device than Alexa. That should at least assure it a niche in the market, and it sold out of pre-orders at launch. HomePod then becomes a means by which many other services are sold. Apple has the cash to make HomePod a services blockbuster.
As to the iPhone 8 and X, which many analysts considered a bust when they were first announced, some of their best features, like power management, are only now coming to light. Phones don’t just have the initial sell-through anymore. Apple has a huge business rehabbing and reselling phones, giving them a longer life in the market.
What is happening right now is that the stock market is falling. Apple is not.
The stock market is falling because interest rates are rising, and you can now get a safe return of 3-4% on your money, something that wasn’t possible before.
The economy is still growing at a good clip. Apple is growing faster than that, it’s profitable, and while the go-go days are over, you can still make money in AAPL stock at these levels.
Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time, available now at the Amazon Kindle store. Write him at firstname.lastname@example.org or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in AMZN.