Apple is facing the problem that many large companies face: slowdown. $100 million to $1 billion is a lot easier than $1 billion to $10 billion. Because stock prices are a voting machine for future growth potential, in that sense, Apple is limited. Nevertheless, there are many good signs for Apple investors. If you got in (and out) at the right times in 2014, you could’ve gotten a 66% return on your money, as investors believed in Apple’s many strengths.
One of Apple’s strength’s currently sweeping the media is CEO Tim Cook being named “CEO of the Year” by CNN. A company’s management is arguably its most important asset, because without great leaders to implement a vision, companies spin their wheels and eventually burn out. Cook had some pretty big shoes to fill but he led share buybacks and helped the company evolve and grow even more. Apple acquired 20 different companies in 2014, including Beats.
Perhaps the strongest reason to buy Apple stock is its reasonable 16.5 P/E ratio. Even if 15 is the benchmark for most value investors, people should expect to pay at least a small amount for growth potential (like with Amazon, Facebook, etc.). I’m reminded of Philip Fisher’s Common Stocks and Uncommon Profits, where he says, “Don’t quibble over eighths and quarters.” I would hate to have an investor sit on the sidelines, waiting for the magic P/E to come, only to see 16.5 be the bottom and leave him in the dust.
Finally, Apple can continue to pump out products that will catalyze earnings. Of course I’m talking about the Apple Watch, set to hit the market in the first half of 2015. Experts expect the company to sell 20 million – 30 million units in the 12 months of availability.
Because many indicators are telling investors to move to cash now (see Seven Years To Break Even? Protect Yourself During a Stock Market Correction and This Number Can Tell You If The Market Is Overvalued) filling your portfolio with Apple may not be the best move if you are looking for short-term gains or cannot stomach a loss, should it occur. Apple is no stranger to drops, falling over 40% from September 2012 to April 2013. Peter Lynch would say investing is more about stomach than brains.
Bottom line: If you are a short-term investor (or a speculator), stay out for now. If the S&P keeps sinking, Apple is likely to go with it. If you plan to hold Apple for the long-term, this represents just another buying opportunity.