There is needless controversy over whether or not Apple is a stock to be held for the long term. While valid concerns do exist, the ...
There is needless controversy over whether or not Apple is a stock to be held for the long term. While valid concerns do exist, the core fundamentals that made Apple investable 20 years ago haven’t changed.
That’s true even though Steve Jobs is gone. Because he didn’t just create a company culture, he built a consumer culture. Apple was and still is – for the most part – all about one thing: simplicity.
Advancements in technology have complicated this mission to a certain degree, but Tim Cook maintained Jobs’ legacy in keeping Apple products intuitive and easy to use. When something goes wrong, it’s usually easy to fix.
Nobody can say that a PC problem is easy to fix. They are the devil’s gift to consumers.
Yet as devices grew more complicated, Apple didn’t just let it happen. What began as a brilliant store experience to shop and sell products also became a central hub for generating repair revenue.
The Genius Bar may seem like a one-stop help shop, but it’s just a Trojan Horse. If it’s anything other than a simple fix, you’ll be paying for it now. This concept was so successful that Best Buy saved its business by replicating it. They invited in a number of brands to create similar store-within-a-store concepts that offer the same “fixes.”
The Apple store also operates like the streamlined machines it sells. Apple employees are friendly and smiling like you’d expect from Disneyland workers. Consumers are serviced with efficiency and ease, and the chance to try new items is spectacular.
By building a loyal consumer culture, Apple never has to put products on sale. Apple enthusiasts are usually treated to frequent updates and upgrades, each markedly better than the last.
Tim Cook may not be a visionary, but he’s a solid game manager.
There have been some worries, though. The iPhone became responsible for 75 percent of sales. That was way too much. Tim Cook was managing things but not innovating.
Finally, he ramped up the Services division. That is growing quickly, and should drive Apple forward for some time.
There are concerns about China, especially with the trade war, but there are always questions about China. What matters is that the fundamental core appeal of the business and products is intact.
While there may be some near-term weakness, it is not too late to buy and hold Apple stock for the long term.
The company has $135 billion in net cash, or about $30 per share. That means Apple stock has a net-of-net-cash price of $170 per share. FY19 earnings are expected to be $11.43 per share, giving Apple a P/E ratio of about 15.
Analysts see earnings growth of 12% annually over the next five years.
Is it worth paying 15 times earnings for 12% growth? Yes, and that’s because Apple deserves a premium for its world-class brand name, ample cash position, and the fact that it generated $64 billion in free cash flow last year.
In short, Apple is fairly valued, offering plenty of upside for years to come – plus a 1.5% yield.