Even though markets keep trying to scare investors out of Apple Inc. (NASDAQ: AAPL), the cash-generating smartphone giant is a stock that investors should just buy, hold, and forget forever. The reason is simple: AAPL, whose market cap crossed $1 trillion recently, keeps growing at an impressive pace. Yet if markets correct and investors look for excuses to sell stocks, Apple will prevail because of its strength in multiple markets.
Moreover, AAPL has multiple, positive catalysts that will keep its businesses strong
iPhone Refresh
Apple refreshed its new iPhones, most notably the XS and XS Max, with several features Additionally, AAPL cut the prices of the iPhone 7 and 8, and it discontinued the SE. Though this is the “S,” or intermediate upgrade phase of the device, the refresh should help the company sustain its profit margins. The price may deter consumers from upgrading because the new iPhones cost $1,379.00-$1,999.00 in the U.S. But payment installments and subsidies from AT&T Inc. (NYSE: T) and Verizon Communications Inc. (NYSE: VZ) should help make the devices more affordable. The XR starts at $749.
One important side note is that on the Verizon Wireless page, the average rating of the XS model is just 3.5 stars. The device earned high ratings for battery life and design, but it received a low score on storage. That may deter some consumers from upgrading to the device. But for investors, complaints about low storage are good. Consumers will have to pay more in order to obtain additional storage, boosting Apple’s profits and AAPL stock in the process.
More Product Updates on October 30
AAPL said that it would have an event on October 30. Chances are good that it will introduce updates to the iPad, MacBook, and Mac Mini during the event. In the last few years, Apple appears to have neglected these product lines by only updating them sporadically. During the upcoming event, AAPL may finally bring higher-end specifications to the Mac Mini and call it a Mac Mini Pro.
The Valuation of Apple Stock
At a recent price of around $220, AAPL stock trades at a valuation of 19 times earnings. Apple stock is trading for 16 times analysts’ consensus 2018 earnings per share estimate. And while the dividend of AAPL stock yields only 1.33%, patient investors may continue holding the stock and buy call options against the underlying holding.
Per tipranks, the 36 analysts who cover Apple stock have an average price target of $241.33, suggesting upside of around 9%. So if Apple stock drops in the near-term, investors should hold onto the shares.
Quarterly Earnings Expectations
When AAPL reports its quarterly results on November 1, the company will probably report strong profits from nearly all parts of its business, including Music and Cloud. Last quarter, Apple earned $2.34 per share as its revenue rose 17.4% to $53.3 billion. iPhone sales jumped 20%, helped by the upgrades of existing customers, along with more consumers switching to an Apple device for the first time.
Double-digit percentage growth in Apple’s active installed base helped AAPL generate record service revenue of $9.5 billion. Apple’s revenue probably reached record levels again last quarter, since the number of consumers using its products increased.
Near-Term Risks Facing AAPL
The only short-term risk that may hurt AAPL stock is Apple’s outlook. The company’s guidance may be negatively impacted by the U.S.-China trade war. If the conflict has a material impact on consumers in China, iPhone sales could be negatively affected.
The Chinese government may even go out of its way to encourage its citizens to buy smartphones made by Chinese companies, hurting iPhone sales in the future.
In the last decade, as Apple stock rose, there was no trade war affecting Apple’s results. As early as this quarter, AAPL and owners of AAPL stock might find out the impact, if any, of a trade war on the company’s results.
As of this writing, the author did not hold stock in any of the companies mentioned.
