Shares in Apple (NASDAQ:AAPL) are down 6% in October — and they were among big tech’s best performers for the month. The Nasdaq fell about 11%. Microsoft (NASDAQ:MSFT) and Alphabet (NASDAQ:GOOGL) are both down about 10%. Meanwhile for Netflix (NASDAQ:NFLX) and Amazon.Com (NASDAQ:AMZN) the losses are closer to 20%. Apple shares hung in and are still up nearly 24% on the year as the market opens for business October 31.
The reason is no mystery.
The whole tech wreck is based on analysts, and investors, switching from a preference for growth to a preference for profit. They want money today, not tomorrow. They want cash in their hands and to heck with the future.
Apple Is a Big Tech Company With Profits
Apple gives them that, a 73 cent-per-share quarterly dividend, covered several times over by earnings. Compared to other income producers it’s a tiny yield, 1.37%. But it can be enough.
Apple is due to report earnings after the market closes November 1. Analysts are expecting $2.79 per share, and hoping for $2.90, on revenue of $61.57 billion.
This would put Apple on track for revenues of $264.03 billion in 2018. The estimate for 2019 is $281.86 billion in revenue, and that’s just a 6.8% growth rate. But it’s the steady net income line, an average of $12 billion per quarter going all the way back to 2015, that investors and analysts are looking at.
AAPL Stock Still Has Growth Ahead
Just because Apple stock has reached that goal of profitability all techs strive for, doesn’t meant there’s no growth ahead here.
iPhone sales have leveled off, but the next-gen iPhones could revitalize the space. But even if iPhone sales remain flat, AAPL has other areas for growth.
Last quarter, revenues from Apple’s Services sector grew 31% year-over-year, and I believe Services will soon become AAPL’s primary growth driver. The Services sector includes Apple Pay, Apple Music, Apple Care and iCloud storage among other things.
AAPL’s second growth driver is the Apple Watch. Apple shipped 4.7 million watches in the second quarter of this year alone, according to IDC, and is now the top wearable company in the world. It has lapped Fitbit (NYSE:FIT) and even overtaken China’s Xiaomi (OTCMKTS:XIACY), with year-over-year growth of 38%.
The Apple Watch will, over time, deliver ongoing financial benefits like the iPhone through services revenue. This will include new health services, like fall detection and the monitoring of blood sugar levels.
Rounding it all out, one shouldn’t forget the iPads and Mac Pros Apple announced October 30 in Brooklyn.
The Bottom Line for AAPL Stock
Apple is no longer the growth story it was, but Apple continues to grow, and the bulk of its growth is now coming in the high-margin services sector.
Investors can get all this for just 19 times earnings, at a time when the average stock in the S&P 500 is priced at 22 times earnings.
Apple, unlike the other FANG stocks, is a good investment in the most conventional terms, the terms the market is imposing now. I was an idiot to sell a few years ago. Buy, buy, buy.
Dana Blankenhorn is a financial and technology journalist. He is the author of a new mystery thriller, The Reluctant Detective Finds Her Family, available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in MSFT and AMZN.
