The Apple Inc (NASDAQ: AAPL) stock price has begun to regain some of its mojo after the big sell-off in late 2018 and early 2019.
Fears about valuation, China and management’s decision to drop quarterly reporting of iPhone units spooked analysts. Analysts couldn’t believe they might actually have to calculate things for themselves. What a world we live in, huh?
Here are three quick reasons I still think Apple is probably the best company on the planet.
1. Brand.
You can’t become one of the biggest companies in existence without a meticulously crafted brand. That’s especially true if you’re selling to consumers. Today, Apple is known for its high level of privacy (whether true or not), security, quality and service.
For example, I’m lead to believe resellers of iPhones, like Telstra Corporation Ltd (ASX: TLS) and Optus, cannot market an iPhone without Apple’s tick of approval on the messaging. By contrast, it seems that just about anyone who can fog a mirror is able to advertise a Microsoft Corp (NASDAQ: MSFT) device. (For what it’s worth, Microsoft is a brilliant company but it has a different target audience.)
The price for a new iPhone or iMac (nearly $25k for the top specifications!) may have reached a tipping point. However, Apple is one of a few consumer-facing companies that has been able to reach deeper into consumers’ pockets — while growing its unit sales — for decades. That’s a key sign of a powerful competitive advantage.
2. A Love Strangle.
Look down at your iPhone, MacBook, Watch or iMac. Is it telling you that it’s time to upgrade your iCloud storage? Welcome to the next stage in Apple’s profitability.
In my opinion Apple’s push for more Services revenue (think of things like the App Store, iCloud and iTunes) is a big deal. It’s bigger than most analysts realise — especially those who are focused on the next quarter. I get it. Services is only a small contributor to the top line right now, but wait five years.
Amazon Inc (NASDAQ: AMZN), Microsoft, Google/Alphabet Inc (NASDAQ: GOOGL) and Apple. Those are the names of the railways which set the direction of the internet and continue to dominate our interaction with technology more broadly.
As software continues to eat the world, the incremental revenue generated from a push towards Services over hardware sales is going to be lucrative for those on the right side of the table — long-term investors in technology.
Apple management’s decision to drop the “Q’s” in quarterly reports (i.e. the “quantity” of iPhone units) ticked off many analysts who were concerned about falling iPhone unit sales. But Apple’s not silly. They know the peak year for iPhone was likely 2015/2016. That’s why they have been on a PR and IR marathon to stress the importance of focusing on the number of active iOS devices.
For value-conscious investors, there’s merit in the renewed focus. Consumers are embracing the ability to let our watches talk to our phones, the fridge or even the car. Points of presence or active devices are key.
In summary, tech companies’ push into our homes, businesses, banking, recreation and vehicles sounds ominous. But, for now, consumers’ affection towards their brands makes their increasing dominance more of a loving and caressing strangle of our wallets.
3. Balance Sheet
At present, Apple has more than $US200 billion of cash on its balance sheet (note: I say ‘cash’ but most of it is shown as ‘marketable securities’). It’s got plenty of low-cost debt too. My point is you can’t have optionality without financial flexibility. Just ask an Aussie household strapped to their jobs or lifestyle as a result of a heavy mortgage.
With the firepower to swallow companies like Tesla Inc (NASDAQ: TSLA), Atlassian (NASDAQ: TEAM) and Okta Inc (NASDAQ: OKTA) — and then go back for mains — Apple could grow in ways we don’t yet expect.
Risks
I don’t want people to read this write-up, get starry-eyed and mortgage the house to buy Apple stock. If recent months have taught us anything it’s that there are plenty of risks facing the business.
There are other powerhouse tech giants that circle Apple. Amazon, Samsung, Google, Microsoft… the list goes on. Each of these is similarly positioned to reach further into our pockets and force Apple out.
Then there’s regulation. Just this week Europe reinforced its new stance on monetary policy — impose fines on large technology companies. I jest, but you get the idea — eventually, gravity and innovation could take over and bring the likes of Apple crashing back to earth.
Finally, Apple shares are not a bargain.
I’m guessing there would be tens of thousands of analysts and shrewd investors just like myself following the company’s each and every move. I consider my edge to be behavioural more than informational or analytical. Wait for the fat pitch if you’re so inclined.
My Perspective
Apple has proven it’s got staying power and I see a bright future ahead — albeit a rocky one as it transitions to Services revenue. And with tailwinds in the form of rising iOS penetration, smart homes, offices and wearables, there’s lots to like about Apple stock going forward. That’s why I own it for the Rask Invest model portfolio.
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At the time of publishing, Owen owns shares of Apple and Alphabet.
