Are you considering buying Apple stock but unsure if it is a good buy? Or maybe you are concerned it doesn’t fit into your portfolio’s investment goal. Well, look no further because in this post is a detailed analysis of Apple that will answer your question(s) so you can decide whether to buy or pass on this tech stock.
Apple Inc. (AAPL) is a tech business almost all are familiar with in this day and age. Apple’s competitive advantage stems from its ability to package hardware, software, services, and third-party applications into sleek, intuitive, and sexy devices. Apples main products include Mac computers & laptops (which I own and love), the iPads, iPhones (own and love as well), AirPods and the Apple Watch. All of its physical products sync together for seamless use and have an intuitive operating systems that make them easy for any level of experience a user has. Apple has a unique business model where it almost always releases new devices seasonally, which creates a buzz around the tech industry in a way that has consumers wanting to buy the iPhone, then buy the AppleWatch to sync to their iPhone, and then throw in the AirPods while you are at it.
The services that Apple provides are just as user friendly and fun as its devices. Apple services include Apple Music, Apple TV+, Apple Fitness+, Apple News+, Apple Arcade, iCloud, the App Store, and its new Apple Card. What’s beautiful about the Apple Services is that you can listen to music, have personal trainers assisting with your daily workout, read the latest news, catch a flick, store your precious data, play a video game and make purchases at most stores all from the palm of your hand. Also, The dynamite app store helps with iPhone sales and assists in growing Apple’s user base, with applications ranging from productivity, social media, gaming, music, and so on.These services provide Apple with monthly subscription based income that definitely helps this tech titan rake in massive amounts of cashflow.
Moat of Brand
I believe Apple has a wide economic moat rating that stems from a combination of great products, user functionality and a large amount of cash the company is sitting on. As of the beginning of February 2021 Apple has $195.57 billion in cash on hand, according to the company’s fiscal first-quarter earnings report released at the end of January. That’s up 2% from the company’s fiscal fourth quarter of 2020, when it reported $191.83 billion on cash. Apple’s primary moat source revolves around user experience with a cohort of auxiliary products such as iPad, Apple TV, Apple Watch, AirPods, as well as its services (see above) that promote Apple’s influence on consumers. Honestly, there is no other tech titan with similar expertise in both hardware and software. This allows Apple to build industry-leading devices that command industry-leading average selling prices, most notably the firm’s crown jewel: the iPhone.
Recent survey data shows that iPhone customers are not even contemplating switching brands today. In a December 2018 survey by Kantar, 90% of U.S.-based iPhone users said they planned to remain loyal to future Apple devices. A recent survey (as of October 2020) from 451 Research indicates iPhone customer satisfaction of 98% for iPhone 11, 11 Pro, and 11 Pro Max combined. Also, users of ancillary products (especially the Watch and AirPods) lose significant functionality when paired with a smartphone other than the iPhone. Ultimately, we believe that existing iPhone users are relatively locked in to the iOS ecosystem and interface.
I think Apple’s stewardship rating is Kickass. Tim Cook is the CEO of Apple and serves on its board of directors. Before being named CEO in August 2011, Tim was Apple’s chief operating officer and was responsible for all of the company’s worldwide sales and operations, including end-to-end management of Apple’s supply chain, sales activities, and service and support in all markets and countries. He also headed Apple’s Macintosh division and played a key role in the continued development of strategic reseller and supplier relationships, ensuring flexibility in response to an increasingly demanding marketplace. Cook was considered Jobs’ right-hand man and served in various operations roles with Apple before becoming COO in 2005. Although Jobs’ death was a blow to the firm, as he was a one-of-a-kind leader and creative mind, Apple is not lacking in capable leaders.
Somewhat of a recent addition to the Apple leadership is John Giannandrea. He is Apple’s senior vice president of Machine Learning and AI Strategy, reporting to CEO Tim Cook. John joined Apple in 2018 and oversees the strategy for artificial intelligence and machine learning across the company and development of Core ML and Siri technologies. Prior to Apple, John spent eight years at Google where he led the Machine Intelligence, Research and Search teams. His knowledge of AI and machine learning will certainly help Apple become a staple company in both sectors moving forward.
I am comfortable that recent hires have strengthened Apple’s bench in the unlikely event of Cook departing the company, and each hire likely has aided in Apple’s efforts to build and deliver current Apple products and perhaps future products as well. All the while, Apple’s ongoing operations continue to generate operating margins and cash flow well above its peers in various hardware industries, which bodes well for future free cash flow for investors.
What I Like
Plain and simple: I like the growth Apple’s stock has seen over the past 10 years, as well as the fact that it now pays a dividend. For years Apples was regarded as a company that created only high-end devices for consumers with significant wealth to drop a thousand or more dollars on a laptop or cell phone. However, Apple is doing a great job of bringing their costs down and creating great products at both an entry level and premier level. You can now buy the iPhone SE for $399, it is a great device with the same functionality as the top tier iPhone models and at a fraction of the size (4.7 inch display) and price. Also, Apple has created the MacBook Air laptop which is a powerful device for personal and business use without having an entry level price to scare consumers away ($899). Apple has opened its door to a large class of consumers by creating these entry level products.
Aside from its products and services, I enjoy the values of Apple. Its values focus around accessibility, education, the environment, privacy, racial equity and justice, etc. The accessibility goes back to how I said Apple products are very intuitive to use – I cite the simplicity of syncing your AirPods to your iPhone without a hassle, the ability to delete an app from your iPhone by simply holding down on the icon and pressing the “x”, and the fact that Apple products now syncs with certain hearing aid devices for the hearing impaired. Also, Apple has been part of the ConnectED initiative since 2014, pledging $100 million of teaching and learning solutions to 114 underserved schools across the country. I foresee Apple continuing to grow and dominant the tech products and services industry – which in turn cause the value of the company and stock to go up.
Most importantly, Apple’s lack of spending in terms of acquisitions is quite admirable. Its strategy of focusing on smaller, tuck-in deals and developing in-house products, rather than suspect deals like Microsoft’s purchase of Skype, appears to have served investors well. Even Apple’s $3.0 billion acquisition of Beats Music and Beats Electronics represented only a tiny portion of the firm’s total cash balance.
What I Do Not Like
There is not much to dislike when it comes to Apple as a business or an investment in my opinion. The one thing that I have come to dislike about Apple products and services is that certain apps or software are not able to be downloaded and used on Apple products. There have been instances where I really wanted to download software or a program onto my MacBook Air but came across an error message saying it was not compatible with Apple’s OS. After a quick Safari search I would come to find out the software was not compatible with Apple OS. But this lack of compatibility does not take away from the value I see in Apple’s brand or in its value.
Fair Price of Apple Stock
Apple has been trading for try past few months as low as $108 a share, to as high as $143 a share, and with a present value of $121. Certain analysts believe a fair price for a share of Apple stock to be – which I think is a low valuation. Apple shares have seen an average of 80% per year gain for the past five years and I think it will continue to see growth with its current products and services, as well as a possible launch into the VR segment within the next year. I give Apple a fair price of $110per share and expect to see a minimum 10-15% return by year end. With that said, I will continue to buy Apple stock a price somewhere between $105-$125 per share for the next quarter.
Don’t forget to stop by next week for my latest review where I dive into a known or unknown tech stock that may fit right into your portfolio. Maybe you can guess what it is, my hint to you is that it is in the tech-gaming industry and has a unique name! I hope you enjoyed this post and would appreciate it if you liked and shared it across your social media platforms.
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