Is Apple (AAPL) a growth stock or a value stock? Let’s take a look at the values. Cash and investments equal about $60 per share, about 33% of the current market value of the company. Take out that cash and it leaves a value of only 9 times 2018 earnings, asserts John Freund, contributing editor to Todd Shaver's Bull Market Report.
This is quite cheap for a company that employs the smartest people in the world working to find new products for all of us to buy. And note that Apple has the largest market cap in the world, running neck and neck with Amazon (AMZN) and Microsoft (MSFT).
The stock is now yielding 1.6%. Add to that, Apple is currently paying out $3 billion to shareholders every quarter through dividends but making closer to $13 billion. Do you think management might be thinking about raising the dividend again? We sure do. There is plenty of cushion.
Those only doing light homework on the topic start clamoring here that Apple’s gross margin is eroding, and investors should run from the stock. However, those who keep digging, find that the services trend is going to offset all the bad mentioned above.
Outside of quarter-to-quarter volatility, the improvement in the services mix will drive higher gross margins for the company overall. As a result, total corporate gross margin should be retained in a range of 40% or slightly higher. Concerns over gross margin pressure are overstated!
After all, it’s more about services and less about the hardware business every passing year. Software is an annuity-annuity-driven revenue model with robust margins and reliable cash flow. Wall Street pays a premium for that model, which is why Microsoft supports double Apple’s earnings multiple (21X versus 11X) despite roughly the same growth profile.
Consumer electronics, on the other hand, is always a race to the bottom no matter how elite your brand or how tightly you’ve integrated your retail channel and support into the product development process.
Every groundbreaking device ultimately matures and prices drop, taking margins down for the ride. Until we see one of Apple’s new gadgets become a craze, the service side is where the heat is here. In the meantime, the stock remains our favorite conservative idea for 2019.
