With the recent tumble in the U.S. stock market, Apple Inc.’s (NASDAQ:AAPL) stock price plunged, before bouncing back quickly afterwards.
Sure, the stock market is in a correction phase, but remember what Warren Buffett told us; “be greedy when others are fearful.” Right now, Apple is in great shape with strong financials and is taking advantage of an “unprecedented opportunity.”
Apple Stock’s Lucrative Dividends
Instead of talking about how great Apple’s products are, let’s first take a look at what Apple has done when it comes to returning value to shareholders. In March 2012, the company announced its initial capital return program of $45.0 billion.
Since then the amount has grown significantly; to $100 billion in April 2013, to $130 billion in April 2014, and to $200 billion in April 2015. The capital return program is expected to continue through March 2017. The company is also paying dividends. Apple’s dividend yield is 1.96%.
When it comes to dividends and buybacks, let’s not forget how much cash Apple has: $202.8 billion at last count. The company piled up $8.0 billion of cash in the last quarter alone!
With such an incredible cash position, Apple would have more freedom for expansions, mergers, and acquisitions, or simply returning value to shareholders.
Strong Momentum in iPhone Sales
If you look at the history of the company, Apple really took off with the launch of the first iPhone in 2007. Until today, iPhone sales remain the largest source of Apple’s revenue. For Apple to continue its track record of growth, it needs to sell iPhones. Fortunately, iPhone sales have been shooting through the roof.
In the third quarter of fiscal 2015, Apple sold 47.5 million units of iPhones, a 35% increase year-over-year in what was typically known as the slowest quarter of the year. Revenue also increased, by 59% year-over-year to $31.4 billion. (Source: Apple, last accessed August 26, 2015.)
China: An Unprecedented Opportunity
Some analysts are concerned that because China is a huge market for Apple, the country’s economic slowdown might drag down the company. However, a closer look at the situation would tell you that even if China’s economy experiences some turmoil, Apple stocks would still be attractive.
China’s economic growth has slowed down. Since the beginning of this year, both manufacturing data and trade data have suggested contractions in the country’s economy.
How did Apple perform in China during this period? Tremendously well. In the most recent quarter, Apple’s revenue in Greater China surged 112% year-over-year to $13.2 billion. The region’s iPhone unit growth was 87% year-over-year, much higher compared to IDC’s estimate of five percent growth in Greater China’s smartphone market.
Apple’s strong momentum in China is likely to continue to the current quarter. In a recent e-mail to CNBC’s Jim Cramer, Apple’s CEO Tim Cook said that “we have continued to experience strong growth for our business in China through July and August.” (Source: Business Insider, last accessed August 26, 2015.)
“Additionally, I continue to believe that China represents an unprecedented opportunity over the long term as LTE penetration is very low and most importantly the growth of the middle class over the next several years will be huge.”
Quite reassuring, isn’t it?
Worldwide Smartphone Growth to Slow Down?
There have been concerns about how Apple would perform in a world where the macroeconomic outlook is rather gloomy. Is worldwide smartphone growth about to slow down?
Yes, but the growth is still solid. According to a report by the International Data Corporation (IDC), smartphone shipments are expected to grow 10.4% in 2015 to 1.44 billion units. Although this is lower than IDC’s previous forecast of 11.3% growth, a more than 10% worldwide growth rate is still decent. (Source: Business Wire, August 25, 2015.)
Moreover, total shipment growth represents the entire industry, while Apple’s growth has always outperformed the rest of the industry.
Apple: Finally a Value Stock
Just like everyone else, Apple’s share price declined during the recent stock market downturn. Right now, Apple shares trade at $105.91 apiece, giving it a price-to-earnings ratio (P/E) of 12.24. That is incredible value for a leading player in the electronic equipment industry.
Looking at Apple’s competitors, Google Inc. (NASDAQ:GOOG) has a P/E of 28.54, and the industry has an average P/E ratio of 18.82.
With durable competitive advantage and a solid financial position, Apple represents incredible value. Investors should take a serious look at Apple before the market realizes the company’s potential.