In the recent past, there has been a significant amount of retail focus on meme stocks. In general, these stocks are speculative in nature. Therefore, there is a meaningful disconnect between valuations and actual fundamentals.
Long-term investors have, however. been sticking to the basics of value investing. Even at current market valuations, there are quality business available at attractive levels. Apple (AAPL) stock is one name that seems to be worth considering.
Amidst some volatility, AAPL stock has been largely sideways in the last three quarters. With strong revenue growth, a breakout on the upside seems imminent.
At the onset, it’s important to mention that Apple reported cash and equivalents of $204.4 billion as of Q2 2021. Furthermore, for the first six months of the year, the company reported an operating cash flow of $62.7 billion. This would imply an annualized operating cash flow of $125 billion. (See Apple stock chart on TipRanks)
The key point to note is that Apple has high financial flexibility. It’s likely that dividends will continue to increase on a sustained basis. Furthermore, Apple will continue to pursue aggressive share repurchases. AAPL stock seems equally attractive for growth and income investors.
Diversified Business Growth
A strong liquidity profile has also enabled Apple to pursue innovation-driven growth that’s not limited to just iPhones and iPads. Apple is likely to become a significantly diversified company in the next five years.
For Q2 2021, Apple reported revenue of $7.8 billion from the Wearables and Accessories segment. Further, the company’s revenue from the Services segment was $16.9 billion. These two segments constituted 27.6% of the company’s total revenue.
It seems very likely that the Wearable and Services segments will have a higher revenue contribution in the coming years. It’s worth noting that the Healthcare sector is worth $3.5 trillion and Apple is making inroads in the segment. In FY2019, Tim Cook was quoted saying that Apple’s greatest contribution to mankind will be “about health.”
Therefore, Apple Watch might just be the tip of the iceberg when it comes to the company’s investment in healthcare.
In March 2021, Amazon (AMZN) announced the nationwide launch of telehealth services for its employees and other companies. The pandemic has resulted in an increased focus on the healthcare segment. Apple stands to benefit, with the company having ample financial flexibility to make big investments in the sector.
Apple’s entry into the electric vehicle segment is another possible game-changer. Estimates indicate that the electric vehicle industry will growth at a CAGR of 29% over the next decade. This presents an attractive opportunity for Apple, which has brand-pull.
If reports are to be believed, Apple is targeting electric car production by FY2024. The company is targeting next level battery technology, which will be a differentiating factor in an already competitive market. Recently, the company hired Ulrich Kranz, a former senior executive at BMW who is focused on electric cars.
In the iPhone segment, growth is likely to remain strong for Apple. The key reason is the company’s 5G phones. It’s expected that Apple will dominate the 5G market throughout the year.
Wall Street’s Take
According to TipRanks’ analyst consensus rating, AAPL stock comes in as a Moderate Buy with 20 Buy, 5 Hold and 2 Sell ratings assigned in the last three months.
As for price targets, the average Apple analyst price target is $157.88 per share, implying around 19.3% upside potential from current levels.
The biggest advantage for Apple is its technological edge, coupled with a business that’s a cash flow machine. It clearly seems that Apple is keen on spreading its wings in the next few years. In particular, the company plans to make inroads in the healthcare and electric vehicle segments.
AAPL stock has been in a consolidation mode, and the price range of $110 to $133 might serve as a support zone from a technical perspective. Considering the company’s growth and expansion plans, it makes sense to patiently wait for a strong break-out on the upside.
Disclosure: On the date of publication, Faisal Humayun did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.