Apple Inc. (NASDAQ:AAPL) has gotten its groove back. For the year so far, the shares have logged an impressive return of 37%, pushing AAPL stock’s market cap to a staggering $820 billion.
Yet perhaps things have become too bubbly? Maybe AAPL stock is due for some type of correction?
Well, this does seem reasonable. Opinions reflect those questions.
For example, InvestorPlace.com’s James Brumley noted on Aug. 28: “And right now, AAPL stock looks ripe to disconnect in a bearish manner, as profit-takers are looking for a reason — any reason — to lock in their gains. The bullish chatter floating in the market’s ether about Apple now was the same kind of bullish chatter heard in late-2012 and the latter half of 2015 too, and the rhetoric was wrong then.”
While I think he has a good argument, I still believe AAPL stock will remain in the bull phase. Keep in mind that there are a multitude of catalysts that should keep fueling the momentum. So let’s take a look at three:
Bullish Factor #1 For AAPL Stock: Products, Products, Products
AAPL has definitely been busy ginning up new products. For the all-important holiday season, the company will have a new TV (which supports high-end 4K video and HDR), a smartwatch (that provides for a cellular connection) and the HomePod (a Siri-powered smart speaker).
But of course, the key will be the iPhone. Actually, it looks like AAPL will launch three models this week: the iPhone 7s, iPhone 7s Plus and the iPhone 8. No doubt, the iPhone 8 will get much of the attention. The buzz is that it will have an edge-to-edge display, face recognition systems, wireless charging and AR (augmented reality) technologies.
It’s important to keep in mind the market is ready for a strong upgrade cycle. According to a survey from 451 Research, about 52% who are planning on purchasing a smartphone within the next quarter want an iPhone. This is the highest percentage since 2010.
OK then, but what about the price tag? Yes, it looks like the iPhone could fetch a steep $1,000, which will inevitably ward off some consumers.
But the strategy is still likely to be a winner. The high price tag should help make up for the loss in volume. At the same time, AAPL will have lower-priced models to pick up the slack.
Something else: the iPhone 8 could help reverse the declines in China. For the most part, the new devices should provide enough new features to catch the attention of consumers.
Bullish Factor #2 For Apple Stock: The Business Market
Apple is mostly a consumer-focused company. But to expand the revenue base, the company needs to focus more on the lucrative enterprise market.
AAPL does have some key advantages to succeed in this category. Just some of the factors include the premium global brand, the massive digital infrastructure, millions of third-party developers and an enormous cash position.
But to leverage on this, AAPL has been smart to focus on partnerships, such as with International Business Machines Corp. (NYSE:IBM), Accenture Plc (NYSE:ACN) and SAP SE (ADR)(NYSE:SAP). A key part of this will be to build business apps. But there are also opportunities to sell more devices. Keep in mind that — during the most recent quarter — there was a nice uptick in iPad sales.
Bullish Factor #3: Financial Stability
Even with the run-up in AAPL stock, the valuation is still fairly reasonable. Consider that the forward price-to-earnings ratio is about 15X. By comparison, Microsoft Corporation (NASDAQ:MSFT) trades at a multiple of 20X and GOOG is at 23X.
But AAPL is likely to represent a safe haven. After all, with uncertainty returning to the markets — because of the geopolitical issues in North Korea and the concerns about President Trump’s domestic policies — the shares have performed quite well. Then again, AAPL is probably going to continue to grow revenues and cash flows for a sustainable period of time.
Tom Taulli runs the InvestorPlace blog IPO Playbook and operates PathwayTax.com, which provides year-round tax services. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
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