Don’t Get Caught Up in the Headlines — Apple Stock Is a Buy

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Apple stock - Don’t Get Caught Up in the Headlines — Apple Stock Is a Buy

Source: Apple

It’s been a difficult year for Apple (NASDAQ:AAPL) investors. Apple stock is down nearly 30% from its 52-week and all-time highs, and analysts haven’t been kind to the tech giant over the past few weeks, which has kept the stock from rallying. Investors are understandably skittish about the impact trouble in China and waning demand for iPhones might have on the firm, but with AAPL stock trading below $170 per share you’d be crazy not to at least consider the possibility of buying the dip.

Here’s the thing about Apple, it’s a great stock to buy and hold for a long time because the firm pays out a reliable 1.72% dividend yield and its impressive cash reserves give management the flexibility needed to invest in the company’s future as well as rewarding shareholders. So, when the opportunity to buy arises, it’s worth considering. 

What Happened?

Earlier this week, Jim Cramer made an interesting point about Apple stock’s movements — he said the wild swings AAPL has seen recently sum up what’s happening in the wider market perfectly. He commented that “jittery, insecure, underconfident traders will take their cue from anything.”

Of course, some of Apple stock’s losses are deserved; the company is facing some real headwinds. A Chinese court recently ruled in favor of Qualcomm (NASDAQ:QCOM), saying that Apple indeed violated some of the firm’s patents. The ruling means that AAPL can no longer sell its older iPhone models in China. That could deliver a huge blow to Apple in the future since the nation’s sales made up about 18% of the company’s overall revenue last quarter. 

The dispute between Qualcomm and Apple is only in its early stages. As of right now, the phones are still being sold and Apple will likely appeal the decision. However with the U.S.-China trade tension still bubbling under the surface, the ordeal looks likely to create controversy for Apple stock throughout the next year. 

So Why Buy Apple Stock Now?

With analysts warning that demand for iPhones is starting to shrivel and worries about losing ground in China persist, there’s certainly a bear case out there for AAPL stock. However, there’s also a pretty solid bull case that I think makes Apple stock a buy at its current price. 

For one thing, there’s AAPL’s subscription services arm, which has been growing considerably over the past few years. Services have become the firm’s second largest segment, which is good news for investors for a few reasons. First of all, it’s a high margin business that gives the firm a continuous revenue stream as long as it can hold on to its subscribers. Perhaps more importantly, though, is the fact that Apple’s subscription services further expand the Apple ecosystem making existing users much less likely to switch.

Services aren’t the only part of Apple’s business that’s booming, “other products” has been on the rise as well. This segment — soon to become “wearables, home and accessories” — saw its revenue increase 35% in the most recent quarter. It includes things like the Apple Watch, HomePod and all of the Apple’s Beats products and should to grow significantly in the quarters to come. 

I think Apple’s entrance into the wearables market with the Apple Watch proves that the firm won’t roll over to competitors and won’t rely on its iPhone sales forever. Despite being one of the last to market, the Apple Watch is one of the most popular smartwatches available. 

At the moment, other products makes up just 7% of the firm’s overall revenue, but as the Apple Watch continues to grab marketshare and the company’s home accessories like Apple TV and HomePod gain traction that figure is likely to increase significantly. 

The Bottom Line for Apple Stock

The point is that Apple is more than just iPhones at this point and investors shouldn’t panic during these wild swings in the market. Not only that, but Apple still has one of the strongest balance sheets on Wall Street. The firm’s massive cash coffers give management flexibility to invest in new businesses, build out the wearables offerings and continue rewarding shareholders through buybacks and dividend payments. 

The company certainly isn’t immune to threats, but it’s about as sturdy as you can get and that’s worth something in today’s market. 

As of this writing Laura Hoy was long AAPL. 

Marie Brodbeck has a Finance degree from Duquesne University and has been a financial journalist for more than a decade. Her work can be seen in a variety of publications including InvestorPlace, Benzinga, Yahoo Finance and CCN.


Article printed from InvestorPlace Media, https://investorplace.com/2018/12/dont-get-caught-up-in-the-headlines-apple-stock-is-a-buy/.

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