The last few weeks have been hard for us Apple (NASDAQ:AAPL) Shareholders. The stock is now 15% below its December high, sliding back to late 2021 levels. This is a weakness that most investors are simply not used to seeing in this frequent Wall Street favorite.
If you’re interested in taking a new position in Apple, don’t let the stock’s recent performance faze you. There are still good reasons to pursue long-term deals with this consumer technology giant. Here’s a rundown of the top three.
1. The company is struggling with headwinds in China
Perhaps the biggest reason for Apple stock’s recent plunge is the company’s recent performance in China. It wasn’t great. The country is simply not developing into the growth engine that was once expected.
In fact, technology research firm IDC reports that Apple’s iPhone lost that lead again in the first quarter of this year, after emerging as the country’s smartphone market leader last year (by losing less than its rivals). It’s a microcosm of the company’s struggles in the region.
The company is finally overcoming the challenge, if only by turning its attention to more promising markets. By the way, this is Southeast Asia and India. Earlier this month, CEO Tim Cook visited Singapore and committed $250 million to expand operations there. Apple is also investing heavily in India as a manufacturing partner and as a market for its goods and services.
Bloomberg reports that India assembled $14 billion worth of iPhones last fiscal year, with the country also seeing the opening of its first-ever Apple Store in 2023. Counterpoint Research reports that Apple is now the leader in India’s smartphone market in terms of sales, while analysts with Morgan Stanley say India alone could account for 15% of Apple’s revenue growth over the next five years.
It’s certainly a compelling start to move away from China, where doing business is proving increasingly difficult.
2. Apple is finally getting serious about AI
The emergence of artificial intelligence (AI) has taken shape without much apparent involvement from Apple. But that will soon change. Without going into substantive details, CEO Tim Cook said in February that some AI-powered features of the company’s next-generation technology would be unveiled sometime later this year.
What features? That’s it. He didn’t say it. Given the company’s work, it’s not an exaggeration to assume that Apple’s new A17 processor and the next version of its operating system (iOS 18) will likely allow iPhone owners to do generative AI work on their devices rather than in the cloud (where actually most generative AI tasks are currently being completed). Of course, this has the potential to make Apple’s on-board assistant Siri an even more powerful tool.
And it’s important. As Evercore ISI analyst Amit Daryanani describes it, Apple’s consumer-focused AI offerings could trigger a “supercycle” of demand for the iPhone. It’s not just its consumer-facing features that are enhanced by artificial intelligence. Apple’s technology is also capable of doing things like optimizing ad placement and helping digital cameras (or augmented reality devices) understand what an object or image is.
All told, Wedbush analyst Daniel Ives believes Apple’s AI offerings could – just as a starting point – add another $5 billion to the company’s annual revenue.
3. Money is still flowing like crazy
Even though sales growth has been a hit recently, that hasn’t stopped Apple from continuing to grow its profits. The company’s net income of $100.9 billion over the last four reporting quarters is near a record, second only to the 12-month period that ended in early 2022 (following the surge in smartphone purchases, which had been put on hold during this time). and because of the pandemic).
What gives? Credit this largely to the growth of Apple’s services business. App and streaming content sales rose 11% year-over-year last quarter, but beyond that, that revenue represents a very high margin. About three-quarters of the company’s services revenue converts to gross profits, while it’s just 40% in product-related revenue % are. The slow shift towards a more service-oriented business is proving to be disproportionately lucrative. And it will probably stay that way in the future.
Of course, the ultimate bottom line is cash flow. And Apple has plenty of it and can do a variety of things with that money, including increasing its dividend, paying down debt, or acquiring complementary companies. Few other companies have such capabilities.
Incidentally, Apple also has $73 billion in cash and cash-like instruments and $99 billion in other marketable securities, strengthening its fiscal flexibility when needed.
Before you take the plunge
Ready to dive in? There are good reasons to wait a little longer. This means the company is expected to release its second quarter financial results after the market closes on Thursday, May 2nd. This could lead to volatility; It could send the stock down. We just don’t know. For investors who can’t stand a rocky start to a new position, missing a post-earnings surge is more comfortable than enduring a post-earnings dip.
If Apple shares actually plunge after Q2 results, that’s absolutely a buying opportunity. This year’s weakness in the stock is already amplifying in the worst-case scenario (and then some) without sufficient thought given to the bullish initiatives the company is currently taking. The market could trigger another knee-jerk reaction to a bearish Q2 numbers.
However, if it does happen, it is likely to actually drive away the last potential sellers and leave buyers behind for a while. That is of course your decision. However, keep in mind that these timing-focused strategies usually don’t end up playing much of a role in true long-term positions.
Should you invest $1,000 in Apple now?
Before buying Apple shares, consider the following:
The Motley Fool Stock Advisor The analyst team has just identified what they think this is The 10 best stocks so investors can buy it now… and Apple wasn’t one of them. The ten stocks that made the cut could deliver huge returns in the years to come.
Think about when Nvidia created this list on April 15, 2005… if you have $1,000 invested at the time of our recommendation, You would have $537,557!*
Stock Advisor provides investors with an easy-to-follow roadmap to success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks per month. The Stock Advisor has service more than quadrupled the return of the S&P 500 since 2002*.
See the 10 stocks ยป
*Stock Advisor returns from April 22, 2024
James Brumley has no position in any of the stocks mentioned. The Motley Fool has positions in Apple and recommends them. The Motley Fool has a disclosure policy.
“3 Reasons to Buy Apple Stock Like There’s No Tomorrow” was originally published by The Motley Fool