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Msg  188740 of 188748  at  5/6/2020 10:45:55 AM  by

sergeant


buy apple shares

Apple Is Buying Shares Of Apple And So Should You

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14 comments
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About: Apple Inc. (AAPL)
Steven Fiorillo
Deep Value, long only, Growth, dividend investing
(4,939 followers)
Summary

I believe shares of Apple have 38% upside and can reach $400 by fall of 2021 making it a buy at current prices.

With almost $400 billion given back to shareholders in the form of buybacks and dividends since 2012 Apple has proven its commitment to shareholders.

Apple sees tremendous value in its stock as the board as authorized an additional $50 billion to share buybacks.

Apple could see an increased adoption rate of new products as people upgrade their technology to enhance their home offices.

Apple (AAPL) is arguably the best consumer products company on the planet and could be the best company for returning capital to shareholders. It’s hard to find negatives about investing in AAPL and I still see massive long-term value in its overall business. Even with the headwinds from COVID-19 I still see a runway to $400 a share which I discussed in a previous article about AAPL. Originally I stated that by May 2021 I thought AAPL could hit $400 and while I still believe this is possible I am going to revise my original timeline to October 2021. On the Q2 2020 conference call Luca Maestri shared with the investment community that Apple continues to see great value in its own stock as the Board authorized an additional $50 billion for share repurchases. Not even COVID-19 can stop the bullish case for AAPL it can only slow it down a bit. AAPL is one of those special companies where you should purchase shares when you can and just hold on to them. Shares have bounced off its lows but there is still an opportunity to put capital to work as I see an upside of roughly 38% over the next year and a half as AAPL approaches $400.

A screenshot of a map Description automatically generated

(Source: Seeking Alpha)

It's quite possible Apple products will become more important post COVID-19

COVID-19 has forced many companies to embrace technology as shelter in place orders have made working from home the new normal for the time being. I personally do not use an Apple computer but I do have an iPhone and multiple iPads in my home. With platforms like Office 365 and Teams from Microsoft (MSFT), or video conferencing tools such as Webex and Zoom (ZM) companies are finding that work is still getting done and projects are advancing. I believe products from AAPL will become more sought after for business as the digital world is embraced.

I think some companies will rethink the amount of office space it requires in the future and having some positions being remote except for some meetings. Previously the fax machine, personal printers, the internet, and email were all supposed to change how business was conducted and there were many who thought the physical footprint of companies would decrease. These advances in technology made actual business more efficient and didn’t have the effect on office space as many had thought. COVID-19 on the other hand has forced many companies to conduct the majority of their operations virtually and they are finding that business can still be conducted. I wouldn’t be surprised if as leases expire companies downsize their footprint as it would decrease overhead expenses by allowing employees who prove they can be adults and handle all of their work obligations in the designated time frames.

Post COVID-19 AAPL could see a huge spike in laptops, iPhones and iPad from both business accounts and personal purchases. I find it much easier to have every telecom app loaded on my iPad including WebEx, Zoom and Teams than using my computer. Many desktop monitors do not come with a webcam or mic and I could never use a laptop to work on as the screen is just too small. Like many I have been using all three video conferencing platforms and I get invited to meetings where the host uses a different platform. I have found that putting my iPad in front of my computer screen allows me to be more productive. I have a 34” ultra-wide screen which is adjustable so I can have multiple PDFs, spreadsheets and email open during meetings so I can access information as needed or work collectively on the same time.

Post COVID-19 companies may be more inclined to proving a laptop, smartphone and/or tablet than providing office space for some of their employees. On an individual level people may decide to upgrade their technology to gain additional processing power or longer battery life. I can tell you my next purchase will be another iPhone as I am still on the 7plus as I have been holding out for AAPL’s 5G phone. My battery is horrible and working from home may force me to just get the iPhone 11 very soon. COVID-19 could create a jumpstart on technology upgrades and if that is so AAPL will certainly benefit.

Services have been a bigger shining star than many people gave it credit for

In the article on AAPL I wrote on August 1st, 2019 I said “Services also has huge potential as AAPL can generate continuous revenue from subscriptions and sales. This is a great complement to their products, and one day, I believe Services will generate more revenue than their hardware products.” 2020 could be the year this happens as in 2019 Services almost generated more revenue than what I consider AAPL’s hardware consisting of the Mac and iPad segments. The iPad business segment generated $25.74 billion and the Mac segment generated $21.28 billion in revenue for a grand total of $47.02 billion. Services in 2019 generated $46.29 billion in revenue. It's simply astonishing that AAPL built a brand-new business segment and within roughly five years it has grown to a $46.29 billion dollar business. Services are bigger than both iPad and Mac on their own and is neck and neck when you combine them.

When you look at Services as its own line item there are some interesting patterns that can be deciphered from Q1 2017 – Q2 2020. From the end of 2017 – 2018 Services grew 24.05% than from the end of 2018 – 2019 it grew by 24.47%. Then when you look at the revenue generated in Q3 & Q4 of each of the fiscal years in 2017 Q3 & Q4 grew by 111% from Q1 & Q2 then in 2018 the same thing happened where Q3 & Q4 grew by 111% from Q1 & Q2 than in 2019 Q3 & Q4 grew by 107% from Q1 & Q2. From 2017 – 2018 Q3 & Q4 revenue grew by 23.86% and over 2018 – 2019 Q3 & Q4 revenue for Services grew 22.72%. Even if Apple experiences zero growth in Q3 and Q4 in 2020 Services will still exceed the $50 billion mark as Q1 + Q2 accounts for $26.063 billion in revenue then if Q3 & Q4 comes in flat from 2019 with $23.966 billion in 2020 Services will generate $50.029 billion in revenue.

Services is a new business segment for AAPL yet it's larger than many companies that are part of the S&P 500. We will need to wait for two more quarters but even if the Services growth rate slows to 10% from the previous growth rates of 24.05% and 24.47% it’s still remarkable. I think Services is in its early stages and in seven years can exceed $100 billion in revenue and close the gap on the overall revenue the iPhone business segment generates. Services is certainly AAPL’s shining star and have the potential to drive significant value and growth for years to come.

(Source: Apple) (Data Source: Apple)

(Source: Steven Fiorillo) (Data Source: Apple)

(Source: Steven Fiorillo) (Data Source: Apple)

Apple’s capital allocation in the form of dividends and buybacks is world-class

To my knowledge there has never been a company as shareholder-friendly as AAPL. From the Fiscal year 2012 through Q2 of 2019 AAPL has returned $363.8 billion to shareholders. AAPL has purchased $186.3 billion worth of shares on the open market and $85 billion from accelerated share repurchases for a total of $271.3 billion. AAPL has also paid $81.4 billion in dividends and had $11.2 billion in net share settlements. Why would anyone not want to be a shareholder of AAPL or have anything negative to say about the stock? This is a company that has basically given almost two mega-cap companies back to shareholders.

If this wasn’t enough AAPL is so bullish on its future that the board has authorized an additional $50 billion of share repurchases on top of the remaining $40 billion under the current share repurchase plan. AAPL will be repurchasing $90 billion worth of shares in the future which is a larger number than most of the company’s market caps in the entire stock market. The board also authorized a 6.5% increase to its quarterly dividend from $0.77 to $0.82. AAPL may not have a 5% dividend yield but it's hard to argue with a 6% dividend raise and the amount of buybacks witch is occurring. AAPL has increased its dividend for 7 consecutive years and currently has a payout ratio of 26.67%. AAPL has more than enough room to continue increasing its dividend on an annual basis.

A screenshot of a social media post Description automatically generated

(Source: Apple)

Apple’s financials are in a class which only a few reside

AAPL has a great balance sheet and even more impressive in my opinion is its statement of cash flows. In many cases if I saw total current assets decrease by 11.71% and total current assets decrease by 5.35% I would be worried that this was the start of a long-term trend of deteriorating operations. Then the red flags would pop up in my mind after seeing that shareholder equity decreased by 13.33% in six months. In AAPL’s case they simply get a pass and you must factor in their pledge to reach a cash neutral position over time and their track record for rewarding shareholders through buybacks and dividends. There are only a handful of companies that have a better balance sheet than AAPL and I would classify AAPL’s balance sheet as bulletproof. AAPL has $193 billion in cash & marketable securities with total debt totaling $110 billion. AAPL is in a net cash position of roughly $83 billion and they returned $22 billion to shareholders in Q2 of 2020 which included $18.5 billion through open market repurchases and $3.4 billion in dividends.

AAPL’s statement of cash flows didn’t get the memo that they are one of the biggest companies in the world. Some of the critical metrics are growing much quicker than one would expect for a company of AAPL’s size. YOY for the first six months of operations AAPL’s net income increased 6.21% to $33.49 billion. Its cash generated from operating activities increased by 15.81% to $42,83 billion and its ending balances for cash, cash equivalents and restricted cash increased by 8.12% to $43.05 billion. When you're generating these levels of cash your options are practically limitless. Over time as AAPL approaches a cash neutral position the amount of cash they generate will certainly satisfy their growth objectives, debt obligations and dividend increases.

A screenshot of a cell phone Description automatically generated

(Source: Apple)

Conclusion

APPL is one of the best companies someone can choose to make an investment in. Since 2012 AAPL has returned almost $400 billion in share buybacks and dividends to its shareholders. AAPL’s financials are incredibly strong and its products are some of the most sought after from any company. I believe AAPL’s products could see an increase in sales as people upgrade their technology products to meet the new demands of working remotely. Services is still in its infancy and is on track to exceed $50 billion in revenue in 2020. There is a lot to be positive about with APPL and the recent pullback has provided an opportunity to purchase shares. AAPL is a buy as shares could hit $400 by the end of 2021. This is certainly a company you should just hold and add more when opportunities present themselves.



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