Apple Inc. (NASDAQ:AAPL) has become both the beneficiary and victim of its success. The return of Steve Jobs transformed Apple from a nearly bankrupt company to the large tech industrial it has become today. Apple stock has continued its growth despite the passing of Mr. Jobs.
However, Apple’s peers have now caught up with the company on innovation. Despite losing its leadership role, Apple’s past and future growth make Apple stock one of the best value investments in existence.
Despite Growth, Apple Stock Is Cheap
AAPL holds the world’s largest market cap at around $900 billion. Peers such as Alphabet Inc (NASDAQ:GOOGL,NASDAQ:GOOG), Amazon.com, Inc. (NASDAQ:AMZN), and Microsoft Corporation (NASDAQ:MSFT) remain behind in the race to reach the $1 trillion market cap first.
Its price-to-earnings (PE) ratio of under 18 stands well below all of these peers, and below the S&P 500 itself. Hence, Apple remains the most likely company to be the first to make it to the $1 trillion market cap.
Still, many wonder why this achievement has not yet occurred. Most would instinctively blame slow sales for the iPhone X. However, Apple remains one of the few vibrant tech companies to support a low PE ratio consistently.
I mentioned in a previous article that the PE made Apple more akin to a JPMorgan Chase & Co. (NYSE:JPM) than a Netflix, Inc. (NASDAQ:NFLX).
Whether Apple has that next product that compared to the quantum leap that the iPhone made in 2007 remains unclear. Most of the products Apple expects to release in 2018, I would call “me too” products.
They’ll release the HomePod wireless speaker and an Apple Pencil that allows one to write directly to a screen. However, the marketplace has seen these products before. The same goes for updated versions of the iPhone and the iPad.
Apple Stock Has Become a Buffett Stock
Despite the “me too” products, analysts expect profits to grow at double-digit rates. This makes Apple stock a supercharged version of an old industrial. Confirmation of this “conservative appeal” has come from unexpected quarters.
Warren Buffett, who had famously avoided tech stocks for most of his career, now embraces Apple. He recently announced that in the last year, Apple stock became his single largest purchase. In fact, next to Bank of America Corp (NYSE:BAC), Apple has become his second largest holding.
Also, since I wrote that article, estimates have increased. Analysts expect annual profits to grow by 24% this year to an estimated $11.43 per share. Hence, Apple can stop that psychologically significant $1 trillion market cap this year without exceeding historical norms on their PE ratio.
Besides Warren Buffett’s interest, dividend growth has become a draw. Though the yield is only a little more than 1.4%, the dividend has increased every year since the company initiated the dividend in 2012.
Also, investors who bought Apple stock in 2004 and still own it are receiving their initial investment back every year in dividends alone.
AAPL stock can still make investors richer
However, the laws of mathematics make it unlikely investors who buy today will see such gains. Barring a hyperinflation scenario, a $5,000 investment in Apple stock now will not yield millions a few years later.
In fact, for the stock to double in value just one time, the market cap will have to climb to $1.8 trillion. I realize that the first trillion is the hardest. And once AAPL stock breaks that barrier, a $2 trillion will seem achievable.
However, a “future Apple” that may hold a $2 billion market cap today has to double almost nine times to reach Apple’s current market cap.
Hence, outsized gains will likely remain out of the question. Still, the slow, steady gains that appeal to Buffett are easily doable. Finding that “next Apple” remains difficult.
The Bottom Line on Apple Stock
AAPL stock has become one of the best value investments with high growth and low valuation. Although Apple has ceased to lead the industry in product development, its products remain competitive.
Apple stock also maintains a low valuation in comparison to high-flying tech peers. Interest from Warren Buffett and a growing dividend show that the stock has become an old-line industrial with supercharged growth.
Apple has become much too big for a small stake to make investors rich. However, if one is looking for steady, double-digit growth to help make them a little wealthier, Apple stock stands as an excellent option.
As of this writing, Will Healy did not hold a position in any of the aforementioned stocks.
