Apple (NASDAQ:AAPL) will report earnings after the bell on Nov. 1. Analysts expect the Cupertino, California-based consumer electronics giant to report improved earnings and revenue. This will also serve as the first earnings report since the latest iPhone release. Still, regardless of the numbers reported by the company, the case for owning Apple stock remains solid.
For the previous quarter, Wall Street forecasts earnings of $2.78 per share. If this holds, it will represent a 34.3% increase from last year when the company reported quarterly earnings of $2.07 per share. Analysts also predict revenues of $61.57 billion for the quarter. This comes in 17.1% higher than last year when the company brought in $52.58 billion.
Apple exceeded earnings expectations in the previous four quarters. Considering the history of Apple stock, another earnings beat remains likely. However, I expect Wall Street will focus on sales of the latest iPhone models, the number one Apple product in terms of revenue.
Still, no matter what Apple reports on iPhone sales, I believe Apple stock remains a long-term buy for the following five reasons:
Apple Stock Valuation
Apple has grown its fan base and fascinated the public with its innovations since the late 1990s. Despite its popularity, it has not translated into a high price-earnings (P/E) ratio for Apple stock. The current P/E for AAPL stock stands at just over 18.
This does not compare well to the triple-digit P/E of Amazon (NASDAQ:AMZN), or even the current P/E of just under 25 for Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG). Even Procter & Gamble (NYSE:PG), a Dow 30 component, which many tech investors would consider “boring,” commands a P/E of just over 23.
Others might blame the $1 trillion-plus market cap, arguing that the market has not yet prepared itself for a $2 trillion or a $3 trillion market cap. However, this trend held even when AAPL was a much smaller company. The average P/E for AAPL stock over the last five years comes to about 15.3.
However, during the recent downturn, this low P/E has served as one reason Apple stock has avoided correction territory. Even if the market continues to fall, I do not think AAPL will see the levels of loss that other tech stocks have suffered. In fact, it would create a situation where AAPL stock becomes an even better buy.
Apple Stock Growth
Profit growth has defined Apple stock since co-founder Steve Jobs began his second and final stint at the company. The iPod, along with the iPhone and other products, drove Apple from a company near bankruptcy to the world’s largest publicly traded company.
Despite its large size and the loss of Jobs’s creative abilities, AAPL still enjoys double-digit growth rates. Over the past five years, AAPL stock saw average annual growth of almost 13.5%. The company has experienced an exceptionally strong year in 2018 with predicted net income growth of 28%. Analysts expect double-digit growth to continue over the next five years. They forecast average annual net income increases of almost 11.7% during that time.
Moreover, I see little that will stop AAPL’s growth. Even without Steve Jobs, the company has kept abreast of changing trends and continues to lead in smartphone innovation. The upcoming move to 5G wireless technology should bolster that trend over time. Hence, I see little that will stop its double-digit growth in the foreseeable future.
Strong iPhone Sales, New Upcoming Products
While many Apple products retain their popularity, as mentioned before, the iPhone continues to drive the majority of company revenues. This persists despite the price increases and a seemingly continual need to update products.
While last year’s iPhone 8 experienced disappointing sales, the latest iPhone XR, its “discount” model which sells for $749, sold out of its initial supply in just four days. Analysts now expect an average iPhone sales price of $801 for the previous quarter, a record high.
They believe the pricier iPhone XS and XS Max models will drive this average selling price. Moreover, they think the iPhone XS Max, the most expensive iPhone at $1,099, will outsell the iPhone XS. They also forecast sales of 46 million iPhones for the quarter.
Apple also released both a new iPad Pro and an updated MacBook Air and Mac Mini at this week’s product launch event. The new iPads will include larger displays, increased storage space while becoming the thinnest versions ever. The MacBook Air will consist of not only the retina display but four times the pixels of the previous model. It will also include Touch ID.
Stock observers will like that the new iPad starts at $799, while the new MacBook Air starts at $1,199, $200 more than the previous MacBook Air. If iPhone sales give any indications, these products should help to drive revenues higher for the next few quarters.
Apple Stock Dividends
Apple stock remains a latecomer to dividend payments, having initiated its first dividend payment in 2012. However, it has increased this dividend every year since the dividend began. For 2018, the dividend stands at $2.92 per share, a yield of about 1.35%.
Its yield may appear low. However, the annual increases may signal that the company plans to pursue an eventual “dividend aristocrat” status. If this pace continues, it will join an elite group of stocks that has increased its dividend annually for 25 or more years. Moreover, with a cash position that stood at $243.7 billion as of the previous earnings report, AAPL should have no trouble retaining and increasing this dividend payment.
Furthermore, some long-term holders of Apple stock will enjoy particularly valuable rewards. Investors who bought AAPL before September 2004 purchased the equity at or below the price of its current dividend. Hence, this group of investors receives their initial investment back every year without selling a single share!
While I do not see new buyers enjoying such a privilege, I think it speaks well to the long-term dividend rewards of buying and holding Apple stock.
Apple’s Vision and Passionate Fan Base
Admittedly, this only relates to Apple stock indirectly, but the company holds to a reason for why it exists. The Simon Sinek TEDx talk “Start With Why” explained its appeal well. AAPL stock continues to grow in value and yield ever higher growth and dividends. While that pads the portfolios of its stockholders nicely, these profits remain a result of Apple’s why, not its core aim.
As trite as this may sound, Steve Jobs founded Apple with the vision of changing the world and challenging the status quo. This vision has built a fan base for Apple. So passionate is that fan base that they will wait in line for hours to buy the latest iPhone upon its release. The fact that one could purchase these products in a few weeks without waiting has not discouraged the lines.
At the end of the day, Apple remains a computer and a device company. Yet, Samsung does not see this kind of reaction when it releases its smartphones. More importantly, this vision inspires the innovations that sway the hardcore Apple lovers to need the latest gadget now. Such passion translates into higher profits and more stock price growth for the holders of Apple stock.
As of this writing, Will Healy did not hold a position in any of the aforementioned stocks. You can follow Will on Twitter at @HealyWriting.