Apple: In Transition?

08/07/2014 8:00 am EST


Richard Moroney

Editor, Dow Theory Forecasts

The iPhone alone generated more revenue in the last year than Boeing, Johnson & Johnson, or Microsoft; even the oft-overlooked iTunes software and services unit produced more revenue than 72% of S&P 500 companies, suggests Richard Moroney, editor of Dow Theory Forecasts.

For years, Apple (AAPL) seemed indestructible. Until September 2012, when the stock suddenly crumbled, overcome, at last, by the crushing weight of expectations, a pipeline depleted of flashy new gadgets and profit margins besieged by cheap knockoffs.

Long gone are the quarters when Apple’s revenue and profits leaped tall buildings in a single bound.

Still, Apple posted solid June-quarter results in a transitional period ahead of a busy schedule of product launches this fall. And the stock has rebounded this year, up 23% and well ahead of the S&P 500’s 7% gain.

For now, investors are fixated on what Apple left unsaid. True to its nature, Apple has kept quiet on its lineup of new devices.

But published reports say Apple wants manufacturers to produce an initial 70 million to 80 million of the new, larger iPhones. Apple may also launch its so-called iWatch this year.

Apple’s enterprise business is also gaining momentum, helped by a deal with IBM (IBM) that could boost sales of iPhones and iPads.

It’s not clear whether Apple has settled into a mature growth phase or is winding up for another major growth spurt. But profit projections seem manageable, with the consensus calling for 11% growth in fiscal 2015 ending September.

And the stock, earning a Value rank of 80, looks reasonably priced. Apple scores in the top 25% of our research universe for all six Quadrix categories, and its sector-specific scores are 90 or higher. Apple, yielding 1.9%, is a Long-Term Buy.

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