Apple (AAPL) is one of the most well-regarded stocks among tech sector stars. AAPL stock was soaring early in the year, but since has dipped amidst broader market fears. The macro-economic situation has created uncertainty, but it might be a good time for savvy investors to pick it up while it trades at multi-year lows. Not to forget, Apple's self-sustaining ecosystem and rock-solid cash balance indicate that it can weather the current economic storm, and offer massive gains down the line. Hence, I am bullish on AAPL stock
On TipRanks, AAPL scores a 9 out of 10 on the Smart Score spectrum. This indicates a high potential for the stock to outperform the broader market.
Apple Works Better than a Magnet at Attracting CustomersApple always succeeds at keeping people coming back to its incredibly popular product base. This quality has helped the company earn billions before and continues to provide it with a competitive advantage. Apple, in its second quarter of 2022, generated more than $97 billion in revenue.
The iPhone, which is considered Apple's bread and butter, contributed more than $50 billion to overall sales. Undoubtedly, Apple's products, especially the iPhone, have what it takes to sustain this level of growth. Hence, the iPhone has it all covered.
Apple has had a knack for grabbing opportunities. The company recognized the 5G opportunity and has pounced on it. Apple released 5G-compatible phones in late 2020 to which has led to a double-digit surge in revenues since its release.
Despite the high revenue growth, it might be ignorant to assume that Apple won’t be hurt by inflation. The increase in prices might put consumers off from buying Apple’s devices. But the good part is that Apple isn’t just a hardware company. The firm's diversification towards software-as-a-service (SaaS) has aided Apple in generating recurring revenue through subscriptions.
The company's service segment, which comprises of digital payments, AppleCare, cloud storage, and advertising products, saw a revenue hike from $46.3 billion in 2019 to more than $68 billion last year.
Incredibly Sticky EcosystemApple's self-sustaining ecosystem must be one of the reasons to invest in the company's stock. In addition, the interplay between Apple's products and services ensures that consumers rely on both, which means Apple's revenue will bolster as more people continue to subscribe between product purchases.
The amazing part is that Apple is consistently putting efforts into expanding this ecosystem. The company has acquired more than 100 companies in the last few years, and it spends millions in research and development just to enhance the ecosystem it has built over the years.
The company's research and development budget has soared from $0.78 billion in 2007 to a whopping $21.91 billion. The considerable research and development cost represents half of the company's operating expenses. This means that Apple's expenses today will turn into profits in the long run.
A Cash Flow Generating MachineCash hoarding is one of Apple's powerful assets. The company wrapped up its second quarter with more than $193 billion in cash and cash equivalents. So, while looking at Apple's cash flow, one can say that Apple has a lot of capital to put into work.
The powerful cash position has not only helped Apple invest in research and development, but rewarded shareholders. For instance, Apple spent a massive $85.5 billion in share repurchases and $14.5 billion on dividends last year. Hence, it reaffirms its commitment to reward its shareholders.
Wall Street's TakeTurning to Wall Street, AAPL stock maintains a Strong Buy consensus rating. Out of 28 total analyst ratings, 22 Buys and six Holds were assigned over the past three months.
The average AAPL price target is $186.09, implying 31.46% upside potential. Analyst price targets range from a low of $157 per share to a high of $210 per share.
Final Word on AAPL StockApple's strong cash flows and liquidity are reason enough to invest in the tech giant. Its timeless products continue to impress and leave an indelible mark on its burgeoning customer base. Moreover, the company's thriving service segment continues to grow at double-digit rates, entailing that revenue will keep growing in the future. Yes, Apple isn't unsusceptible to macroeconomic challenges, so the stock may experience pain in the short run.
However, it doesn't take away from its incredible long-term case which continues to get stronger over time. Hence, it's plausible to expect another bumpy year, despite the headwinds.
So while macroeconomic factors such as inflation and recession fears may paint a sordid picture, investors holding AAPL stock will be glad they picked up the right company for the long haul.
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FAANG stocks have been unable to steer clear of the market hailstorm that's hit the tech sector. Though high-flying hyper-growth stocks have dragged stocks lower in the first half, the fallen FAANG stocks still appear like great long-term holds, even as rates and recession risks rise by the month.
Many may be quick to conclude that FAANG is dead. And although the acronym may be in need of an update following the epic blow-up of Meta and Netflix in the first half, I'd argue that the broader basket needs more time to demonstrate its resilience.
As America's top tech titans brace themselves for an economic slowdown, investors and analysts have been quick to temper expectations. Given their tremendous resilience, I'd argue it's likely that it's the FAANG stocks that could provide leadership as markets look to rebound.
In this piece, we used TipRanks' Comparison tool to have a closer look at two Strong Buy-rated FAANG stocks.
Alphabet (GOOGL)
Alphabet is a wonderful tech company that you can never count out. The company caused a bit of a stir when it reported a mild earnings miss in its first quarter, with $24.62 per-share earnings, missing the $25.89 estimate.
In a market that doesn't even reward earnings beats, you can bet that earnings misses will be met with tremendous selling pressure. Though Alphabet's rare quarterly flop may be viewed as the beginning of a disturbing trend, I'd argue that things weren't nearly as ugly as they seemed under the hood.
The search and cloud businesses were remarkably strong. Internet video behemoth YouTube acted as a major drag for the quarter, thanks in part to significant competition for user engagement and the reopening of the economy. Indeed, many shut-in consumers have been going out, rather than spending hours on custom-tailored videos served up by the YouTube algorithm.
Though lockdown tailwinds are unlikely to return, even as new COVID variants do, I view YouTube as a powerful platform that could recover ahead of an economic slowdown.
YouTube isn't just a magnificent entertainment platform. It's one that could be a lot more recession-resilient than skeptics think.
As the economy slows down, consumers won't be in a hurry to spend considerable sums anymore. Many may ditch their paid subscriptions, and start going out less to curb their monthly spending. As they do, people could spend more time engaging with YouTube's free, ad-based platform.
Though YouTube subscriptions could decline, I view the ad business as one that could take off as free entertainment tiers get a chance to shine.
There's nothing wrong with YouTube. Softness in the first quarter seems like more of a road bump than the beginning of an insidious trend. As YouTube bounces back, while search and cloud continue powering higher, GOOG stock makes for an exciting dip-buy. At writing, the stock trades at 5.3 times sales and 19.8 times trailing earnings.
Wall Street is upbeat, with the average Alphabet price target of $3,090.23, implying 36% upside.
Apple (AAPL)
Apple is another high-quality FAANG stock that investors don't seem to be giving the benefit of the doubt. Despite clocking in a solid Q1 earnings beat, the cautious guide startled investors. There are supply-side constraints that not even Apple can navigate through without enduring a bit of pain.
Still, as Apple moves past such issues in the second half, there are reasons to believe that demand could stay strong, as wealthier consumers continue to spend on the latest and greatest Apple devices and services. It's encouraging that Apple fans tend to have a bit more disposable income than more cost-conscious Android users.
Apple's strong brand may help it dampen downside in a recession. However, it's innovation that could help Apple shrug off a coming 2023 economic slide. The much-anticipated mixed-reality headset is rumored to launch in early 2023.
As you may remember, Apple unveiled the first iPhone in the face of the Great Financial Crisis. Looking back, the market crash of 2008 is just a small blip. Could Apple's big headset launch induce upside such that the 2022 plunge will be dwarfed in a few years' time? I'd argue it's likely.
Wall Street is staying bullish, with the average Apple price target of $186.09, implying 34% upside.
Conclusion
FAANG stocks still seem like great buys, even though they've faded alongside the broader market. At this juncture, analysts expect most from Alphabet over the year ahead. Personally, I find it hard to pick just one of the two Strong Buy rated FAANG stars.
To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.
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The mega caps have suffered in this year’s market rout and so has the biggest amongst them; Apple (AAPL) shares sit 20% into the red on a year-to-date basis. That said, assessing the tech giant’s prospects, one Street analyst expects the upward trajectory to resume shortly.
Tigress 5-star analyst Ivan Feinseth recently reiterated a Buy rating on Apple shares, while maintaining a Street-high target of $210. This suggests the stock will be changing hands for a 48% premium a year from now. (To watch Feinseth’s track record, click here)
Feinseth’s upbeat take is heavily based on the latest product introductions, and a number of “breakthrough announcements” made at the recent WWDC (Worldwide Developer Conference). According to the analyst, these should “continue to drive strong sales momentum.”
So, what did Feinseth particularly like?
One was the announcement of the new M2 chip which compared to the current “groundbreaking” M1 chip is 40% faster. The latest version of the MacBook Pro and the most significant MacBook Air redesigning in over a decade were also announced. There were also software upgrades, including iOS 16, iPadOS 16, and several watch and TV OS upgrades. Another key announcement was of a new BNPL (buy now pay later) payment option called Apple Pay Later.
That’s not all. The next-generation CarPlay interface also made an appearance, highlighting “further expansion into the automotive industry,” which going by Apple’s history, could well be a precursor to its own vehicle. As noted by Feinseth, Apple CarPlay’s functionality has seen constant expansion, and is now moving “beyond just controlling Apple apps to controlling the entire vehicle.”
“Apple’s new CarPlay can completely replace the car’s instrument cluster,” Feinseth expounded on the issue, “including controlling the radio, heating and AC, and other infotainment functions.”
All this ongoing innovation is backed by a balance sheet boasting $173.43 billion - or $10.65 per share - in excess cash (as of March 2022), which will keep on funding “new growth initiatives and strategic acquisitions while returning significant amounts of cash to shareholders.”
So, that’s Tigress’ take, what does the rest of the Street think lies in Apple store? Based on 22 Buys and 6 Holds, the stock has a Strong Buy consensus rating. The $186.09 average target might not be quite as high as Feinseth’s objective but could still generate returns of 31% over the one-year timeframe. (See Apple stock forecast on TipRanks)
To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.
Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.