3 reasons you should buy Apple stock like there’s no tomorrow

The past few weeks have been difficult apologize (AAPL -0.35%) Shareholder. The stock is now down 15% from its December high, taking it fully back to where it was trading at the end of 2021. This is a weakness that most investors aren’t accustomed to seeing in this stock, which is often a favorite on Wall Street.

If you’re interested in a new position at Apple, don’t be swayed by recent stock performance. There are still good reasons to get a long-term deal in this consumer tech giant. Here’s a rundown of the best three:

1. The company is dealing with China headwinds

Perhaps the biggest reason for the recent decline in Apple’s stock price is its recent performance in China. It wasn’t very good. The country is not developing into the growth engine it once hoped to be.

In fact, technology market research firm IDC reported that after taking first place in domestic smartphone market share last year (due to smaller losses than competitors), Apple’s iPhone lost its lead again in the first quarter of this year. This is a microcosm of the company’s struggles in the region.

The company finally solved the problem by turning its attention to more promising markets. By the way, Southeast Asia and India. Earlier this month, CEO Tim Cook visited Singapore and invested $250 million to expand the business. Apple is also investing heavily in India as a manufacturing partner and market for its products and services.

Bloomberg reports that India assembled $14 billion worth of iPhones in the last fiscal year, and 2023 also saw the opening of the country’s first Apple store. Counterpoint Research reports that Apple currently leads the Indian smartphone market in terms of revenue. Morgan Stanley It says India alone could account for 15% of Apple’s revenue growth over the next five years.

This is clearly an attractive entry point into China, where doing business is becoming increasingly difficult.

2. Apple is finally getting serious about AI

The emergence of artificial intelligence (AI) took shape without Apple’s explicit involvement. But that’s about to change. Without specifying any important details, CEO Tim Cook said in February that some of the AI-based features of the company’s next-generation technology would be released at some point later this year.

What kind of features are there? That’s it. He didn’t say. Considering what the company has been doing, it’s not a stretch to suggest that Apple’s new A17 processor and the next version of its operating system (iOS 18) will allow iPhone owners to perform generative AI tasks on their devices rather than in the cloud. This is where most generative AI tasks are actually handled today. Of course, this has the potential to make Siri, Apple’s onboard assistant, an even more powerful tool.

And that’s important. As Evercore ISI analyst Amit Daryanani explains, Apple’s consumer-oriented AI products could trigger a “supercycle” of demand for the iPhone. It’s not just consumer-focused functions that are being improved by artificial intelligence. Apple’s technology can also optimize ad placement, help digital cameras (or augmented reality devices) understand what an object or image is, and more.

Wedbush analyst Daniel Ives believes Apple’s AI products could add another $5 billion to the company’s annual revenue as a starting point.

3. Cash is still flowing like crazy

Sales growth has been sluggish recently, but that hasn’t stopped Apple from continuing to increase profits. The $100.9 billion worth of net income generated by the company over the past four reported quarters is a near-record number. This is only the second in a 12-month period ending in early 2022 (following a surge in smartphone purchases in early 2022). and because of the pandemic).

What do we offer? It primarily recognizes the growth of Apple’s services business. App and streaming content sales are up 11% compared to last quarter, but beyond that, these revenues are very high margins. About three-quarters of the company’s services revenue is converted into gross profit, while product-driven revenue accounts for only 40%. The slow transition to a more service-oriented business has proven to be disproportionately profitable. And this will remain true for the infinite future.

The ultimate end result is, of course, cash flow. And Apple has a lot on its plate, and could do a variety of things with that cash, including raising dividends, paying down debt, and acquiring complementary companies. Other companies rarely have that option.

AAPL net margin (TTM) data from YCharts.

Apple also holds $73 billion in cash and cash equivalents and $99 billion in marketable securities, giving it greater financial flexibility if needed.

before jumping in

Are you ready to dive? There’s good reason to wait a little longer. That means the company is scheduled to report its fiscal second quarter results after the markets close on Thursday, May 2. This can cause volatility. that I think I will Send stocks low. We just don’t know. For investors who can’t handle a tough start with a new position, it feels better to miss the post-earnings pop than endure the post-earnings plunge.

If Apple stock falls following second quarter earnings, this is absolutely a buying opportunity. The stock’s weakness this year has already occurred under worst-case scenarios (and then some) without fully considering the bullish plan the company is currently taking. The market may have another ruthless reaction to the weak reversal in the second quarter numbers.

But if it does eventually take shape, it will actually push out what would be the last seller and leave the buyer behind for a while. Of course that’s what you have to do. Please note that these timing-based strategies are generally not that important in the end for truly long positions.