Apple (NADAQ:AAPL) has had its share of challenges in 2020, but you wouldn’t know that from AAPL stock. The novel coronavirus pandemic has seen Apple retail stores closed en masse, and both product launches and events forced online. There have been concerns that supply chain disruption could delay release of the 5G iPhone 12. And when it does launch, it’s going to be into a market facing a global recession — if not an outright depression.
Despite the challenges, Apple’s stock has gained 18% so far in 2020. Yes, it keeps hitting record highs, which makes it expensive. But this A-rated stock still has plenty of room for growth. Here’s why Apple still deserves a spot in your portfolio.
Business Diversity Demonstrates Resilience to Pandemic
Apple began making big moves years ago to diversify its revenue, foreseeing a day when the iPhone would no longer set sales records every year. That strategy has paid off in a big way over the past few months.
In the second quarter, Apple eked out 1% year-over-year revenue growth and grew earnings per share by 4%. That was despite shuttering its retail stores. A robust online store helped to keep sales humming. The expansion into wearables like AirPods and the Apple Watch saw that division post 22.5% year-over-year revenue gains. Services (like Apple Music and Apple TV+) brought in all-time record revenue for the quarter. The $23.3 billion from Services was a 17.5% year-over-year gain. Now, the company’s second most lucrative division, Services is recurring revenue and offers high margins.
In other words, Apple’s strategy of diversifying its product lines has positioned it to weather even something as catastrophic as a pandemic.
The 5G iPhone Launch
The big ticket product launch of 2020 — and perhaps of the last several years — will be the iPhone 12. The first 5G iPhones are expected to sell like hotcakes after years of slowing and even shrinking sales.
In March, Wedbush analyst Dan Ives was predicting an upgrade “supercycle” that could see 200 million to 215 million new iPhones sold in the year after the expected September launch. At that point he had a $400 price target on AAPL stock, despite the first effects of the March market selloff.
The big question is how the coronavirus might impact the iPhone 12 launch. Production delays remain a possibility, the launch event will almost certainly be online, and it remains a question whether Apple Stores will be open. Many in the southern U.S. have been re-closing after Covid-19 spikes. Then there’s the question of whether consumers suffering through months of record unemployment will have the money to shell out for an expensive new iPhone.
Even if the sales are spread out and sales records aren’t set on launch weekend, they will happen. With 5G networks finally beginning to gain traction across the U.S., iPhone owners are itching to get on the new ultra high speed wireless.
The Transition to ARM Processors for Mac
The big news for Apple over the past few weeks has been the confirmation that its Mac PCs will ditch Intel (NASDAQ:INTC) processors for custom designed ARM chips.
The move is not great news for Intel. It lost Apple’s iPhone modem business to Qualcomm (NASDAQ:QCOM) last year. Losing the Mac will be another blow. Apple currently buys an estimated $3.4 billion per year in computer processors from Intel. Its growing data center market and new 10nm chips will still make INTC a top pick among semiconductor stocks, but Apple’s move will definitely sting.
The companies that are more likely to really feel the pain from Apple’s move are Windows PC manufacturers.
Using its own custom silicon for the iPhone has let Apple differentiate its smartphone from the Android competition. Since those smartphones almost all use the same Qualcomm processors, they don’t have the option of hardware optimization that Apple does. The same thing is going to happen in the PC world. Obvious benefits are expected to include speed and battery life gains, plus the ability for Macs to run iOS applications. PC manufacturers will all be working with the same Intel or AMD (NASDAQ:AMD) chips, so they’ll be limited to what those companies release.
The PC business continues to be in slow decline, but it’s still big. Apple generated $5.4 billion in Mac sales last quarter. This move isn’t as important as a new line of business, but it’s going to be good for AAPL stock over the long term.
Bottom Line on AAPL Stock
Apple has shown its resilience and ability to put together growth even in the most trying circumstances. The company also remains committed to paying dividends and aggressively buying back shares. In its latest earnings reports that was a dividend of 82 cents per share, and another $50 billion committed to share buybacks.
Don’t forget, despite its broad range of products and services, Apple always has more irons in the fire. The ones we know of range from AR glasses to self-driving cars. Any one of these could hit production and even if it’s not the next iPhone, it could be the next AirPods.
AAPL stock has continued to hit new highs in 2020, and it shows no signs of slowing down any time soon.
Louis Navellier had an unconventional start, as a grad student who accidentally built a market-beating stock system — with returns rivaling even Warren Buffett. In his latest feat, Louis discovered the “Master Key” to profiting from the biggest tech revolution of this (or any) generation. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.
