Apple (NASDAQ:AAPL) is a company that’s more than four decades old and has a market capitalization north of $1.1 trillion, the latter factoid confirming the iPhone maker’s status as a story stock. The California-based company continues writing chapters to that story and, more importantly, investors keep benefiting.
Much of Apple’s success is attributable to one of the best management teams in corporate America, regardless of industry or sector. Whether that’s a fully appreciated asset in the Apple thesis is up for debate, but what cannot be debated is that the current market environment is placing a premium on quality, and one of the tenets of quality as an investment factor is strong and steady management. So while Apple stock fits the bill as a growth, momentum and value play, it’s a quality idea, too.
CEO Tim Cook deserves ample credit. He had the enviable task of following the legend that was the late Steve Jobs. To use a sports analogy, that’s akin to putting on a No. 23 Chicago Bulls jersey after Michael Jordan retired.
“CEO Tim Cook confronts multiple issues that each relate to identifying a source of longer-term growth at Apple, as it becomes increasingly dependent on iPhone revenues,” according to a research report by Harvard Business School. “Since Steve Jobs’ death, Cook has successfully led Apple and made it the first company to be worth more than $800 billion. However, under Cook’s leadership, Apple has largely released derivatives of existing products (e.g., iPhone 6 and 6 Plus, etc.).”
While Cook had some doubters, including the authors of that Harvard study, there’s no doubting that more than $300 billion in market value has been added to AAPL stock since that report was penned.
Still Innovating…Sort Of
A frequent criticism of Apple is that post-iPhone innovation has either stalled or revolved around products that are tied to the wildly popular smartphone. However, the company has worked to rebut that thesis. The once-criticized Apple Watch is an example of the company’s ongoing innovation efforts.
What was once viewed as a swing and a miss is now the dominant smartwatch and a credible addition to the Apple stock thesis.
In the third quarter, “global smartwatch shipments grew an impressive 42 percent annually from 10.0 million units in Q3 2018 to 14.2 million in Q3 2019,” according to Strategy Analytics. “Smartwatch growth continues to soar, as consumers increasingly accessorize their smartphones with fitness-led and health-focused wearables.”
The market for wearables is booming. So much so that Apple rival Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG) recently announced a $2.1 billion acquisition of Fitbit (NYSE:FIT). That adds to the competition with Apple, but in wearables, Alphabet will still be behind its rival.
“Apple shipped 6.8 million smartwatches worldwide in Q3 2019, rising an above-average 51 percent from 4.5 million in Q3 2018. Apple Watch remains a long way ahead of the chasing pack and its global smartwatch marketshare has grown from 45 percent to 48 percent in the past year,” notes Strategy Analytics. “Apple Watch continues to fend off strong competition from hungry rivals like Fitbit and Samsung. Apple Watch owns half the worldwide smartwatch market and remains the clear industry leader.”
Then there’s streaming entertainment. Apple recently launched its AppleTV+ streaming service, putting itself into competition with the likes of Walt Disney (NYSE:DIS) and Netflix (NASDAQ:NFLX). Apple is showing a willingness to compete on price, undercutting its rivals by pricing the service at a mere $5 per month, or $50 annually if the entire year is paid for upfront.
It will take a few quarters for the effects of streaming to become clear on Apple stock, but some analysts are bullish, even amid increased competition in the streaming arena.
“We don’t see the present content slate as worth $5/month in comparison to more robust, built-out content libraries of competitors, but such competition does not matter much, in our view, when upwards of 100 million-pluis iOS users (if the present free for a year promotion sustains into 2020) will have access to TV+ content free of charge for a year,” said Deutsche Bank analyst Jereiel Ong in a recent note.
Bottom Line: AAPL Stock Is Still a Buy
In fiscal 2019, iPhone sales slowed, but Apple stock still performed well, indicating the shares could be setting for a big fiscal 2020, particularly as services and wearables growth continues.
“In fiscal 2020, we expect iPhone sales to grow 6% as positive momentum with the iPhone 11 carries to the firm’s first 5G iPhone model to be launched in September 2020,” said Morningstar in a recent report. “We expect services to cross the $50 billion threshold in fiscal 2020, thanks to broad-based strength, while wearables also maintains strong double-digit growth.”
With growth in higher margin products and overall margins expected to remain steady, it’s a lot easier to bet on Apple stock than it is to bet against it.
As of this writing, Todd Shriber did not hold a position in any of the aforementioned securities.
