3 Reasons to Buy Apple Stock Like There's No Tomorrow

The past few weeks have been tough for Apple (NASDAQ: AAPL) shareholders. The stock’s now sitting 15% below its December high, sliding all the way back to where it was trading in late 2021. This is weakness that most investors just aren’t accustomed to seeing from this frequent Wall Street favorite.

If you’re interested in stepping into a new position in Apple, don’t let the stock’s recent performance rattle you. There are still good reasons to take on long-term trades in this consumer-technology titan. Here’s a rundown of the best three.

1. The company’s dealing with the headwind in China

Perhaps the single-biggest reason Apple shares have stumbled of late is the company’s recent performance in China. It’s not been great. The nation just isn’t evolving into the growth engine it was once expected to become.

Indeed, after clawing its way to becoming the country’s smartphone market-share leader last year (by virtue of losing less than its rivals), technology market research outfit IDC reports Apple’s iPhone lost that lead again in the first quarter of this year. It’s a microcosm of the company’s struggle in the region.

The company is finally dealing with the challenge if only by turning its attention to more promising markets. That’s southeast Asia and India, by the way. Earlier this month, CEO Tim Cook visited Singapore, committing $250 million to expand operations there. Apple’s also investing heavily in India as a manufacturing partner as well as a market for its goods and services.

Bloomberg reports India assembled $14 billion worth of iPhones last fiscal year, with the country also seeing the opening of its first-ever Apple store in 2023. Counterpoint Research reports Apple is now leading India’s smartphone market as measured by revenue, while analysts with Morgan Stanley say India alone could account for 15% of Apple’s revenue growth over the course of the coming five years.

It’s certainly a compelling start to weaning itself from China where doing business is proving increasingly tricky.

2. Apple is finally getting serious about AI

The advent of artificial intelligence (AI) has taken shape without much obvious involvement from Apple. But that’s about to change. Without fleshing out any significant details, in February CEO Tim Cook said some AI-powered features of the company’s next generation technology would be revealed at some point later this year.

What sort of features? That’s just it. He didn’t say. Given the work the company’s been doing, it’s not a stretch to suggest that Apple’s new A17 processor and the next iteration of its operating system (iOS 18) will likely allow iPhone owners to do generative AI work on their devices rather than in the cloud (where most generative AI tasks are actually handled right now). This of course has the potential to make Apple’s onboard assistant Siri an even more powerful tool.

And it matters. As Evercore ISI analyst Amit Daryanani describes it, Apple’s consumer-facing AI offerings could spark a “supercycle” of demand for the iPhone.It’s not just its consumer-oriented features that will be improved by artificial intelligence. Apple’s tech is also capable of doing things like optimizing ad placements and helping digital cameras (or augmented reality equipment) understand what an object or image is.

All told, Wedbush analyst Daniel Ives believes Apple’s AI offerings could — just as a starting point — add another $5 billion to the company’s annual top line.

3. Cash is still flowing like crazy

While sales growth has been hit and miss lately, that hasn’t prevented Apple from continuing to pump up its profits. The $100.9 billion worth of net income the company’s produced over the course of the past four reported quarters is nearly a record, second only to the 12-month stretch ending in early 2022 (following the surge of smartphone purchases that had been put on hold during and because of the pandemic).

What gives? Credit the growth of Apple’s services business, mostly. Sales of apps and streaming content improved 11% year over year last quarter, but more than that, this revenue is very high margin. Roughly three-fourths of the company’s services sales are converted into gross profit versus only 40% of product-driven revenue. The slow shift toward more service-oriented business is proving disproportionately lucrative. And this will likely remain the case for the indefinite future.

The ultimate end result is, of course, cash flow. And Apple’s got plenty of that and can do a wide range of things with this cash, including bumping up its dividend, paying off debt, or acquiring complementary companies. Few other companies have such options.

AAPL Net Income (TTM) Chart

AAPL Net Income (TTM) Chart

Apple is also sitting on $73 billion worth of cash and cash-like instruments plus another $99 billion worth of marketable securities, by the way, bolstering its fiscal flexibility should it need it.

Before you take the plunge

Ready to dive in? There’s good reason to wait just a little bit longer. That is, the company’s scheduled to release its fiscal Q2 numbers after the market closes on Thursday, May 2. This could result in volatility; it might send the stock lower. We just don’t know. For investors who can’t stomach a rough start with a new position, missing out on a post-earnings pop is more palatable than riding out a post-earnings plunge.

If Apple shares do peel back following its Q2 results, that’s absolutely a buying opportunity. This year’s weakness from the stock already bakes in the worst-case scenario (and then some) without considering enough of the bullish initiatives the company is currently taking. The market may dish out one more knee-jerk reaction to any bearish spin in Q2’s numbers.

If that’s what ends up taking shape, however, it should actually flush out the last of the would-be sellers, leaving buyers behind for a while. That’s, of course, your call to make. Just know that these timing-minded strategies usually don’t matter much in the end for true long-term positions.

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James Brumley has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple. The Motley Fool has a disclosure policy.

3 Reasons to Buy Apple Stock Like There’s No Tomorrow was originally published by The Motley Fool

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