apple (yyyy -0.23%) has been a fantastic long-term investment, but to date the stock is down nearly 23%. The drop came as investors worry about soaring inflation and the Fed’s aggressive approach to bringing it down by raising the fed funds rate.
The drop in Apple’s stock price, combined with the general pessimism in the market at the moment, has left some investors wondering if Apple stock is still a buy. I think there is a strong case for adding more shares (or starting a position) in the tech giant right now. this is why.
Reading: Should i invest in apple right now
tons of cash to weather any storm
Some investors are exiting tech stocks right now, in part because so many of them aren’t profitable and won’t be for years to come. apple does not have this problem.
At the end of the most recent quarter, the company had $193 billion in cash on hand. Even when you factor in the company’s debt, Apple still had $73 billion left over.
At a time when investors are looking for profitable companies that can withstand a potential economic downturn, Apple seems like a no-brainer.
service revenue continues to grow
apple has built a very successful services business that some investors may not yet fully appreciate. Consider that in the company’s second quarter, Apple’s services revenue increased 17% year over year to an impressive $19.8 billion.
Apple’s services revenue accounted for more than 20% of the company’s total sales, and the tech giant now has 825 million services subscribers, an increase of 25% over the last 12 months.
apple already has enviable gross margins of nearly 44%, but its services gross margins are even better, at nearly 73%. Investors should also consider that Apple still has more opportunities in the services space, including a possible subscription plan for its iPhone and other devices.
a lot of potential for new products
Bloomberg reported in May that Apple had shown its board of directors an augmented reality (AR) and virtual reality (VR) headset. Apple has focused a lot of attention on AR in recent years with iPhone apps, but an AR device could be a big step into a new category.
showing your directory such a device could indicate that the company is close to launching it, perhaps as early as next year. Leading Apple analyst Katy Huberty estimates that an AR/VR device could bring Apple $29 billion in revenue by 2026.
while these are only estimates based on a possible apple device, the company seems to be closer to that product. Apple CEO Tim Cook said this month that people should “stay tuned and you’ll see what we have to offer” in the AR space.
While Apple has yet to confirm an AR device, Cook’s comments continue to hint that Apple has bigger plans for this space than just AR apps.
apple continues to create value for shareholders
And finally, Apple has increased shareholder value by using its cash reserves for share buybacks and dividend payments.
Apple CFO Luca Maestri said on the company’s most recent quarterly earnings call, “Our strong operating performance generated more than $28 billion in operating cash flow and enabled us to return nearly $27 billion million to our shareholders during the quarter.”
That figure came from a 5% increase in Apple’s dividend and ongoing share buybacks, with more to come. Apple’s board of directors has approved a $90 billion increase in the company’s current share buyback program, which will continue to add value to existing shareholders by reducing the number of shares on the market.
With all of the above in mind, Apple stock looks very good, especially at a time when investors are wisely focusing on finding profitable companies that still have room to grow.
See also: Luckin Coffee Vs. Starbucks: Which Wins?