The Bullish Case for Apple Stock
As the biggest company in the world, Apple Inc.’s (NASDAQ:AAPL) role in the market has shifted. AAPL stock is no longer the hungry upstart we knew in the mid-2000s; it is a technology giant with healthy margins and steady cash flow.
This shift is important to understand. It doesn’t make sense to own Apple stock today if you’re upset about missing 15 years worth of gains. There are much better reasons to be bullish on AAPL stock, from juicy dividends to enormous share buybacks.
The old days are gone.
Investors are starting to accept this fact, which is probably why Apple stock jumped 8.9% in the last three months. The market is obviously remembering that Apple made $7.8 billion last quarter. Investors had previously pummelled the stock over a drop in “iPhone” sales.
While I understood the panic, I didn’t necessarily agree with it. Apple is flush with cash, opportunity, and brilliant minds. It has all the things that investors normally crave in a stock, yet there’s disappointment that AAPL stock isn’t a growth play anymore.
Here’s the thing; tech stocks aren’t a monolith.
For all the headlines about “killer apps” or “blockchain” technology, the best companies are still the ones with a clear business model. Anyone who invests in Apple stock can see what the company sells, how much it costs to make, and what the profits are going to be.
Not all tech stocks are risky bets on growth.
AAPL Stock 2016 Outlook
Don’t get me wrong; Apple stock is still capable of huge returns. I’m only saying they are likely to unfold differently than in previous years. Rather than the hockey stick charts from 2004–2007 or 2009–2012, I see AAPL stock advancing at a shallower incline.
The growth would accrue over time through regular dividend payments, huge buybacks, and some capital gains. Think about it this way; if a gigantic tidal wave swept into the city, it would undoubtedly flood my house. It would also be a major news story.
But if a pipe burst in my house while I was away camping on the weekend, it would also result in a flood. Granted, this flood would happen more slowly and there would no press attention, but I’d still need swimming trunks to reach my kitchen.
Between 2000 and 2012, Apple stock was a tidal wave. Over the last few years, however, Apple stock has more closely resembled a burst pipe. You may not see a ton of news stories about it, but the flood is coming.
Moreover, AAPL stockholders are taking on very little risk for such reliable rewards.
After all, these investors could end up making higher returns at this stage of the company’s life cycle. Apple has $230.0 billion of cash, which is collecting dust in an Irish bank account. One way or another, that money has to be spent on something.
Apple could take the Google (Alphabet Inc) (NASDAQ:GOOG) approach by acquiring young startups with interesting technologies, then letting them evolve within the Apple ecosystem. It wouldn’t be an original idea, but it could reap enormous rewards for shareholders.
On the other hand, Apple stock could become an income-generating machine, simply passing profits through to shareholders. At a price-earnings (P/E) ratio of 12.58, it’s not as if Apple stock is priced for enormous growth. Investors understand it has reached maturity.
In any case, Apple is effectively a sure-fire way to steady gains.
This is a trend we’re been starting to see in tech stocks. Fewer startups are going public because they would rather be bought out by an existing tech giant. That’s why there are so many major tech stocks on the cusp of a second or third wave of growth.
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