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Apple Still Appealing for
Buy-and-Hold Investors

Apple Inc. (AAPL) is one of the world's largest makers of consumer electronics, such as the iPod digital music player, the iPad tablet, and the iPhone smartphone. It's one of the largest corporations trading on the U.S. exchanges, with a market capitalization that exceeds $900 billion. Apple joined the Dow Jones Industrial Average in March of 2015, observes Mario Ferro, Associate Director, Value Line Research.

Here’s an analysis of Apple by Mario Ferro in Market Focus, a publication of Value Line.

Apple shares have taken investors on a bit of a rollercoaster ride since we last reviewed them three months ago. The stock climbed to the $200s (up more than 50% from its 52-week low) after the company reported some progress in the second fiscal quarter (ended 3/30/19). The bottom line came in at $2.46 a share, well past our $2.32 estimate, as Apple's efforts to diversify its business beyond the core iPhone franchise continued to pay off. However, the stock lost some ground as trade tensions between the U.S. and China appeared to deteriorate. The continued standoff between the two superpowers hurts the company on a couple of levels. First, China accounts for about 20% of its sales, so any slowdown in that nation's economy would likely weigh down its top line. Secondly, the prospect of further tariffs on products imported from China would drive up Apple's manufacturing costs, forcing the tech giant to take a hit on margins or pass along the increases to consumers.

All in all, fiscal 2019 will likely be a down year for earnings, and visibility is limited at present. iPhone sales will likely remain uneven, due to the maturity of the market, and the aforementioned trade issues. On the plus side, the high-margined services business (App Store, music, etc.) continues to gain traction (related revenues rose 16% in the latest quarter), as new offerings, such as the recently unveiled subscription video services, are rolled out. And the Wearables unit (Apple Watch and AirPods headphones) has several smash hits in its lineup.

Although this quality Dow component does not stand out for the near term, it's still appealing for buy-and-hold investors. It holds worthwhile upside potential to 2022–2024. Stock buybacks and steady dividend growth ought to sweeten the pot.

Editor’s Note: Market Focus is Value Line’s open-access newsletter which provides unbiased insights on investments, the markets and the global economy. www.valueline.com.

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