Apple Stock: Why the Market Is Underestimating the Cash Impact

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Warren Buffett Is Bullish on Apple

The end is not near for Apple Inc. (NASDAQ:AAPL), despite the ongoing market concerns about Apple stock’s soft growth prospects going forward. The company looks to deliver a much-needed game-changing move and reduce its dependence on the “iPhone.”

AAPL stock fell to $150.24 on February 9 but it has rallied 11% since then, and there could be more gains to come as the stock remains below its $180.00 high in January.

The stock received a major investment endorsement on news that famed value investor Warren Buffett made Apple stock the top holding in his Berkshire Hathaway Inc. (NYSE:BRK.B) fund.

Buffett increased his stake in Apple by 23% to approximately 165.3 million shares valued at $27.92 billion, or about 3.3% of the company.

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The confidence shown by Buffett should be viewed as a bullish signal for Apple, since he rarely invests in technology stocks, given their valuations.

There are legitimate concerns about the disappointing sales of Apple’s newly launched “iPhone X.” The soft unit sales may be due to the cannibalizing of the thousand-dollar iPhone X by the launch of the “iPhone 8.”

Or the decline in AAPL stock could be driven by investor concerns about the dependency of Apple on the iPhone, which was the case with the soft iPhone X sales.

AAPL Stock Chart

Chart courtesy of StockCharts.com

The chart shows the stock breaking below the 50-day moving average and trendline support, but this was followed by a quick rally.

AAPL stock could take another run at the $180.00 level if the broader market holds up and avoids another period of selling. Look at weakness in Apple as an opportunity.

What AAPL Stock Needs to Do 

My thinking is that Apple is a cash-rich company with a massive $250.0 billion in cash to innovate in artificial intelligence (AI) and the Internet of Things (IoT) either via internal development or via acquisitions. Apple already announced it would be repatriating the cash with the tax reform.

Apple is delivering strong sales for its “Apple Watch,” which, in a few short years, has become the top seller in the smartwatch segment.

What makes Apple a great long-term investment is the company’s ability to sell products and services in its ecosystem, including “iTunes,” “App Store,” “AppleCare,” “Apple Music,” and “Apple Pay.”

The key for AAPL stock is to convince the market it deserves a richer multiple that could be driven by innovation and acquisitions that can generate excitement in the stock.

Just think about how Amazon.com, Inc. (NASDAQ:AMZN) has grown its business from simply being an online retailer of books and music to a global powerhouse that brings fear to its rivals in whatever area it’s looking at. Apple needs to do the same.

Analyst Take:

The move by Buffett is bullish for Apple stock, as it confirms the company’s business and the potential for long-term growth. With $250.0 billion to use, it is now up to Apple to deliver that next big game-changing move.