Is it Time to Take a Bite Out of Apple Stock?

By market capitalization, Apple (NASDAQ:AAPL) is the second-largest U.S. company, trailing only Microsoft (NASDAQ:MSFT). Apple stock was once the largest, becoming the first stock to sport a market value of $1 trillion, prior to a fourth-quarter decline that saw the stock tumble from a record high of just over $233 to $142.

AAPL: Is it Time to Take a Bite Out of Apple Stock?

Source: Shutterstock

This year, Apple stock is up 17%, but even that gain, shares of the iPhone maker reside more than 20% below the October highs, indicating there is room for further appreciation in Apple stock. However, with a company the size of Apple (market cap of $851 billion) and its sprawling business lines, there are moving parts and bull and bear ideas to consider.

Earlier this month, Bank of America analyst Wamsi Mohan boosted his rating on Apple stock from “neutral” to “buy” while raising his price target on the shares to $210 from $180. The analyst believes Wall Street is too pessimistic on Apple stock.

“Apple’s stock near $170 per share prices in negative growth for both the hardware and services business, but Mohan said this view is too pessimistic. A better outlook is for zero terminal growth in the hardware business and a low-single digit growth rate in the services business,” reports Benzinga.

Apple Stock As a Value Play

The technology sector is not often considered a value destination on par with other sectors revered as being value plays, but a case can be made there is value in Apple stock.

“Apple trades at 14.8 times next 12 months’ expected earnings, according to estimates from FactSet,” reports CNBC. Even the consensus forward P/E of 15.1x on Apple stock found on Morningstar is a discount to the P/E ratio of 18.71x on the Nasdaq-100 Index, of which Apple stock is the second-largest component. Apple stock also trades at a discount relative to the S&P 500 and the company’s prodigious dividend growth and buyback program give the stock a value feel.

The stock could receive a much-needed jolt when Apple CEO Tim Cook potentially gives investors an update on the company’s streaming plans later this month.

“Should Apple stir up the wow factor with its much-ballyhooed TV streaming service, it could get concerns over its next round of iPhones (that they will simply be iterative, not transformational) temporarily off the minds of investors,” according to Yahoo Finance.

AAPL Stock: Cash, Cash And More Cash

Apple has long been beloved for having one of the largest cash hoards in Corporate America. At the end of its fiscal first quarter, Apple had $245 billion in cash on hand. That means Apple’s cash stockpile is about $88 billion more than the current market value of streaming leader Netfilix (NASDAQ:NFLX). Some analysts think Apple should use some of that cash on a significant acquisition.

“While acquisitions have not been in Apple’s core DNA, the clock has struck midnight for Cupertino in our opinion and building content organically is a slow and arduous path, which highlights the clear need for Apple to do larger, strategic M&A (a24, Lionsgate, Sony Pictures, CBS/Viacom, Netflix, MGM) around content over the coming year to ‘double down’ and drive the services flywheel especially with its new video subscription service set to be rolled out,” said Wedbush analyst Daniel Ives in a recent note.

Even if cash is not used for a big deal this year, Apple stock is likely to remain a buyback and dividend growth machine. At the end of last year, the company had about $71 billion of its $100 billion buyback program left, and Apple stock has become on of the S&P 500’s most impressive dividend growth stories.

Less than five years ago, Apple stock paid a quarterly dividend of 47 cents a share, a figure that now resides at 73 cents per share. Apple typically makes dividend announcements in April and it is reasonable to expect a double-digit hike again this year.

As of this writing, Todd Shriber did not hold a position in any of the aforementioned securities.

Article printed from InvestorPlace Media,

©2023 InvestorPlace Media, LLC