Despite many widely followed investors' pronouncements that Apple Inc. (AAPL) is dead as a growth stock, the tech giant has managed to secure a whopping 27% gain this year. The Cupertino, Calif-based company’s 2019 comeback has beaten that of the broader market and its other big tech peers. As of Wednesday close, Apple is less than $55 million away from the $1 trillion market value mark it reached in August 2018, when it became the first U.S. corporation to reach that threshold. In terms of market cap, it is now also now much larger than rivals who briefly eclipsed it, including Amazon.com Inc. (AMZN), Microsoft Corp. (MSFT) and Alphabet Inc. (GOOGL).
Apple Is No.1 Again
- Apple Inc.; $946 billion
- Microsoft Corp.; $922 billion
- Amazon.com Inc.; $907 billion
- Alphabet Inc.; $837 billion
- Berkshire Hathaway Inc. (BRKA); $503 billion
Firing on All Cylinders
Apple shares have been steadily rising, posting a decline only one day out of the past 10 trading sessions. Its rally has added more than $200 billion to its market value, leading the group tech giants just behind Facebook Inc. (FB) as the best performer among America’s tech titans this year.
“Apple is firing on all cylinders. Sure, there have been mistakes, but its products are as good as any they’ve ever made,” says Leander Kahney, who has written best-selling books about Apple and its founder Steve Jobs, per Barron’s.
The primary concern around Apple remains its declining iPhone business, which still comprises over 60% of its total revenue. Fierce competition in the global smartphone market, longer replacement cycles and a broader industry slowdown have outweighed moves by Apple to increase its prices on next-gen products.
Still, Apple bulls are confident that the company can continue to boost its share price by finding new growth markets in areas such as services, the Apple Car, augmented reality, and the Apple Watch, which it aims to turn into a widely used health tool.
Services as a Long-Term Value Generator
The company’s highly anticipated “It’s Show Time” event earlier this year marked a milestone for Apple as it took the spotlight off hardware and instead debuted a wide range of new service offerings. Among the new businesses include a video-streaming platform called Apple TV+, which will head off against market leader Netflix Inc. (NFLX), and other deep-pocketed players like Amazon, Hulu and Walt Disney Co. (DIS). A mobile gaming subscription service and an Apple credit card were also unveiled.
"Services is the long-term value generator of the business," said Kevin Walkush, a portfolio manager, to Bloomberg. His firm, Jensen Investment Management, added to its Apple stake in the fourth quarter. "Ultimately, Apple will become a services-first business and devices will be a way to help consume and support those services."
According to Apple expert and veteran tech journalist Kahney, investors have underestimated CEO Tim Cook, who took the helm in late 2011. Under his mild-mannered leadership, Apple stock has quadrupled. Kahney grades Cook’s performance at a “solid A-,” applauding his focus on improving the product lineup, facilitating collaboration at Apple, and focusing on corporate responsibility and sustainability.
Another bright point for Apple is the global health market, which could grow to triple the size of the smartphone market, according to Morgan Stanley, per another Bloomberg story.
Apple is slated to post its most recent second quarter results on April 30th. The consensus estimate calls for a 6% decline in revenue year-over-year (YOY) and a 13% fall in earnings per share (EPS), per Bloomberg data. Despite near-term hurdles, Apple stock may still look attractive to value investors, given that including 2019’s rally, the stock trades at just about 17 times forward earnings estimates, less than the average of 20 for the S&P Information Technology Index. As an income play, the stock could also be a nice bet, having returned $12 billion in dividends and stock buybacks in fiscal Q1.