Apple (NASDAQ:APPL) is starting to look interesting after the falloff last week. In fact, on Friday Apple stock was flat and over the weekend it was up.
Here are the fears: coronavirus will end up in a pandemic, Apple won’t be able to ship its products and demand for iPhones will dry up around the world.
However, you should control your fears. The market is offering a unique buying opportunity here. Coronavirus will eventually go away and Apple stock will recover. So that means this is probably a good time to look at the stock’s fundamentals.
On Friday, February 28, Apple’s CEO, Tim Cook, said in an interview that this is a “temporary condition.” He said he sees no long term difference between what was happening four weeks ago and what is happening today. He said that the market takes time to recognize that.
By this, he was referring to the period before the coronavirus outbreak started. The point is, he said, that the company is run for the long term. He emphasized that the company has a global and resilient supply chain.
The Bad News for Apple Stock
Last week the company said it would not meet its guidance for the quarter. The company originally said its outlook was for $63 to $67 billion in revenue, but now it has no forecast.
The company said it was experiencing a longer time to return normal than was originally anticipated. More to the point Apple said that its original guidance had a wider range than normal due to the coronavirus outbreak.
All of Apple’s manufacturing facilities are open in China. They are “ramping up more slowly than we had anticipated” leading to “iPhone supply shortages.” In addition, the stores that have opened have slow traffic.
As it stands, APPL stock is 16.6% off its market highs earlier this month. Does that mean the true value of the company has permanently fallen this much? Most likely not. Much of the selling has been due to market overreaction to the coronavirus.
Buybacks Will Help Shareholders
Moreover, it is highly likely that Apple has been repurchasing its own shares during this period. A story I wrote in January described how these buybacks help both the company and shareholders.
Over the past seven years, the company has reduced its share count by over one-third through buybacks. This has had the effect of helping to raise the dividend per share by 84%. By contrast, the cost of those dividends rose only 34%.
In other words, the buybacks accelerate the dividend per share increases. It also increases earnings per share. The same net income, spread over fewer share shares, creates higher earnings per share.
Lastly, and this is what is important these days, the buybacks provide a buffer for Apple stock. They prevent the stock from completely crashing. In effect, the company becomes a buyer of last resort.
Apple’s Fundamentals Are Still Intact
Apple’s fundamentals are extremely strong. On Apple’s earnings call at the end of January, the CFO says that the company has net cash of $99 billion. As of today that represents 8.25% of its market value of $1.2 trillion.
As mentioned above, it is using that cash to buy back its shares. Barron’s published a story this weekend that investors should buy cash-rich stocks like Apple since they are most likely buying their own shares.
Apple had 480M paid subscribers at the end of 2019, nearly to its goal of 500M in 2020. Apple is still selling iPhones worldwide although there have been some disruptions in its supply chain.
As it stands Apple is trading for just 20x forward earnings, and less than that including its net cash.
Investors Should Consider Apple Stock
At this point, the market is likely to start nibbling at Apple once it looks like the coronavirus outbreak is under control, or starting to get under control.
Investors should consider the fact that this is likely to be a temporary dip for Apple stock in the long term. As a result, they might want to add to their positions or even begin a new position.
As of this writing, Mark Hake, CFA does not hold a position in any of the aforementioned securities. Mark Hake runs the Total Yield Value Guide which you can review here. The Guide focuses on high total yield value stocks. Subscribers a two-week free trial.