Add AAPL to Your Portfolio, Just Not Right Now

Despite subpar earnings, the stock rallied [View in browser]( BROUGHT TO YOU BY: Proprietary Data Insights Financial Pros Mega-Cap Tech Stock Searches in the Last Month Rank Name Searches #1 Apple 17,374 #2 Amazon.com 13,822 #3 Microsoft 8,365 #4 Meta Platforms 7,759 #5 Alphabet 4,669 #ad [You Need to Know About Alternative Investments]( Brought to you by [Fiona]( [Get Smart About Savings]( Your money is in a bank account that’s paying 0% interest, now’s the time to move it to a high-yield savings account. Fiona is an online comprehensive marketplace where you can compare savings accounts and rates from top providers in one place. ● APYs 11x the national average ● It’s quick! Open your account in minutes online ● Safe: FDIC Insured up to $250K ● No minimum balance or monthly fees for most accounts [Compare Rates Now]( *Based on the FDIC National Average of 0.21% APY at FDIC banks as of 10/17/2022 and rates listed on Fiona from its banking institution advertisers. Technology Add AAPL to Your Portfolio, Just Not Right Now Financial pros made Apple (AAPL) their top mega-cap search this past month and their second-most searched stock overall. Apple reported a lower-than-expected quarterly profit for the first time since 2016. But instead of punishing the stock, investors made it rally after its Q1 2023 earnings release. This divergence has some believing we’re in a new bull market. Apple is just 14% below its 52-week highs, rallying 19% year to date. It’s one of the best-performing Nasdaq stocks. For example, Amazon (AMZN), Tesla (TSLA), and Meta Platforms (META) are all down around 50% from their 2021 highs. The Fed’s less hawkish tone makes investors hungry again for mega-cap tech stocks. And according to the latest data from our proprietary sentiment indicator, Trackstar, financial pros want a piece of Apple. Despite its outperformance, Apple still offers a compelling story and value, which should make it part of everyone’s portfolio. Apple’s Business Apple cofounder Steve Jobs built a company that’s been through trials and tribulations to become what it is today. AAPL boasts the largest market cap of any publicly traded company in the U.S., at $2.39 billion. Most of its money comes from iPhone, iPad, Mac, and other hardware sales. But its services and digital content through its App Store, Apple Music, and iCloud have quickly become a significant part of the company’s sales. It also earns income from licensing and other services. Despite its massive size and multiple sources of revenue, the company keeps it simple, breaking its net sales into two categories: Products and Services. [Margins] Source: Apple As we said, Apple reported a lower-than-expected quarterly profit for the first time since 2016 when it released its Q1 2023 earnings report early this month. Breaking it down: - Q1 earnings per share of $1.88 vs. an estimate of $1.94 - Q1 revenues fell 5.5% year over year to $117.2B vs. est. $121.1B - Q1 Products revs dropped 7.7% YoY to $96.39B (miss) - iPhone revs down 8.2% YoY to $65.78B (miss on $68.3B est.) - Mac revs fell 29% YoY to $7.74B (big miss) - Wearables, home, and accessories product revs sunk 8.3% YoY to $13.48B (big miss) The bright spot from AAPL’s Q1 2023 earnings was Services revenues rose 6.4% to $20.7 billion, a company record. While earnings were disappointing, shares rallied the following day. Some speculate it’s because the company expects Q2 revenue growth to be higher than the previous year’s. Others think it was due to the Fed’s less hawkish tone. Only time will tell who was right. Financials [Analysis] Source: Stock Analysis Apple has a strong supply chain and distribution network, allowing it to efficiently and effectively distribute its products worldwide. Its profit margins have risen from 21.2% in 2016 to 25.3% in 2022. In addition, its free-cash-flow margins have improved from 24.8% in 2016 to 28.3% in 2022. Warren Buffett’s Berkshire Hathaway is heavy on Apple. AAPL makes up 40.1% of its portfolio. When Buffett first got involved in 2016, Apple paid an annual dividend of $0.545. Today, it pays an annual dividend of $1.077. AAPL is flush with cash, over $51.3 billion. In addition, it generates $109.1 billion in cash from its operations. Valuation [Cash flow] Source: Seeking Alpha Apple trades at a P/E GAAP ratio of 25.8x, slightly above its five-year average of 24.5x. While it’s relatively cheaper than other mega-cap tech stocks like AMZN and Microsoft (MSFT), it trades at a higher multiple than Alphabet (GOOGL) and META. Its price-to-sales ratio of 6.3x is notably higher than its five-year average of 5.6x. But other than MSFT at 9.4x, its peers trade at lower price-to-sales ratios, with AMZN at 2.4x, GOOGL at 1.2x, and META at 1.8x. Moreover, Apple’s price-to-book ratio of 42.4x is historically high. Its five-year average is 23.9x. Meanwhile, MSFT is at 10.4x, AMZN is at 7.2x, GOOGL is at 5.2x, and META is at 3.9x. Apple does look slightly more attractive from a valuation perspective when you compare its price-to-cash flow of 21.9x to MSFT at 22.7x and AMZN at 22.4x. But it’s still higher than GOOGL at 14.4x and META at 9.6x. Investors are willing to pay a premium for Apple for many reasons, including strong brand and customer loyalty, effective marketing, a diversified product line, high profits, and tons of cash from operations. Profitability [Turnover] Source: Seeking Alpha While Apple’s valuation isn’t necessarily attractive, the company stands out in the profitability category. Its net income margin of 24.6% is significantly higher than AMZN at -0.5%, META at 19.9%, and GOOGL at 21.2%. Only MSFT at 33.1% beats AAPL. Apple’s EBIT margin of 29.4% is stellar. While it’s not as strong as MSFT at 40.9%, it’s higher than AMZN at 2.4%, GOOGL at 26.5%, and META at 28.8%. Notably, AAPL is the only mega-cap tech company with a triple-digit return on equity at 147.9%. MSFT’s is 39.3%, AMZN’s is -1.9%, GOOGL’s is 23.6%, and META’s is 18.5%. Growth [Revenue] Source: Seeking Alpha Mega-cap tech stocks struggled in 2022, partly because they had trouble growing revenues. But despite a challenging macro environment, AAPL grew revenues 2.4%, which is better than META at -1.1%, but not as strong as MSFT at 10.4%, AMZN at 9.4%, and GOOGL at 9.8%. AAPL’s EPS growth of -2.4% was significantly better than MSFT at -4.2%, AMZN at NM (not meaningful), GOOGL at -18.8%, and META at -37.6%. [Understand the Headlines That Dominate the Markets]( At The Juice, we explain what the top stories mean and why they matter to you as a consumer and an investor. We'll help you make informed money decisions and become a smarter, more confident investor. [Sign up for free.]( Our Opinion 7/10 Apple is a highly profitable company with a competent management team. But the latest earnings report was a disappointment. We believe AAPL rallied on the Fed’s less hawkish tone. Apple’s current valuation is high, and we wouldn’t buy at these levels. AAPL currently trades at nearly $152. We’d hold off on buying until it dips back down to $135 to $140. Share on: mailto:?body=https%3A%2F%2Finvestingchannel.com%2F%3Fp%3D572392 News & Insights Just Spilled - [Buy Tesla Now, Even After the Rebound]( - [2023 Investment Outlook: The Top Trends to Watch]( - [This AI Investment May Not Be Your Best Bet]( - [Has the Meta Ship Sailed?]( [We want to hear from you! Let us know your thoughts by clicking here]( [Link]( # [submit to reddit]( [submit to reddit]( [submit to reddit]( [submit to reddit]( To ensure delivery of all emails, [allow us on your list]( Spill&email=TheSpill@news.investingchannel.com). Update your email preferences or unsubscribe [here](. Manage your subscriptions with our [preference center](. View our privacy policy [here](. Copyright ©2023 InvestingChannel. All rights reserved. 1325 Avenue of the Americas, Floor 27 & 28 New York, New York 10019 Disclaimer: This is not investment advice. This InvestingChannel, Inc., newsletter is for information purposes only and is based on opinion. Futures, forex, stock, and options trading are not appropriate for all investors. There is a substantial risk of loss associated with trading these markets. Losses can and will occur. No system or methodology has ever been developed that can ensure returns or eliminate losses. InvestingChannel, Inc., makes no representation or implication that using any of the methodologies or systems in this newsletter will generate returns or insure against losses. Investors should be cautious about any and all investments and are advised to conduct their own due diligence prior to making any investment decisions.