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Top-Ranked Apple has a Rich Valuation

The recent issue of The Value Line Investment Survey is dominated by technology related stocks, including powerhouse Apple Inc. (AAPL).

Richard Gallagher, Associate Director, Value Line Research, provides the following analysis of AAPL.

“The California-headquartered company is one of the world’s largest makers of consumer electronics, such as the iPad tablet, the iPhone smartphone, and the Apple Watchsmartwatch. It’s one of the largest corporations trading on the U.S. exchanges, with a market capitalization that is just over $2.0 trillion. Apple joined the Dow Jones Industrial Average in March of 2015.

There is a lot to like about Apple’s business. The Dow component is benefiting from strength across its broad “ecosystem” – in which its software, services, and devices fit together seamlessly and build strong customer loyalty. For example, iPad and Mac sales were up considerably in the September quarter thanks to elevated demand as a result of an increased number of people working from home. The wearables unit (watches, headphones and other accessories) remains a standout. Demand for headphones and the Apple Watch Series 6 have helped maintain momentum here. The tech behemoth’s higher-margined services, such as the App Store and Apple Music, have continued to perform well. The iPhone 12 collection, released in October, should provide a boost to the handheld business. These smartphones feature OLED displays and long-awaited 5G capability, which have made them hot sellers during the holiday season. The increased adoption of the 5G infrastructure should sustain demand for the iPhone 12 in the near term. All told, we look for a strong performance on the top and bottom lines in fiscal 2021 (commenced September 27th).

Apple shares have risen considerably over the course of 2020. As a result, the stock’s valuation seems expensive at the recent quotation despite trading slightly below the all-time high registered earlier in the year. The company’s financials are exemplary. The issue garners our top rank for Safety (1) and Apple retains the highest grade for Financial Strength (A++), which is noteworthy in these uncertain times. Still, we suggest maximum-growth investors stay on the sidelines, given AAPL’s rich valuation.

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