It's not been a particularly great month for Apple(NASDAQ: AAPL) shareholders. Worried about lagging iPhone sales, the stock was downgraded by Barclays at the very beginning of the year, and then downgraded again by Piper Sandler just a couple of days later.
The shares bounced back a bit from their early January stumble, but they're weakening again now. Indeed, it's been a lackluster past few months for shareholders with the stock sliding back to where it was priced in July of last year. Maybe the company's age and sheer size is finally catching up with it.
Or maybe not. Here's a rundown of reasons you might want to use the current lull to load up on Apple stock for the long haul.
1. Apple stock is down for all the wrong reasons
As Barclays analyst Tim Long explains of his firm's downgrade, "We are still picking up weakness on iPhone volumes and mix, as well as a lack of bounce-back in Macs, iPads, and wearables." Piper Sandler's worry is more broad-based. Analyst Harsh Kumar notes, "We believe that first-half 2024 will be challenging for the analog market, handset, and consumer end markets."
In both cases, so-so demand for the iPhone 15 now portends so-so prospects for the iPhone 16 likely to debut later this year. And it's not like the worry is an unreasonable one; the analysts' points are well taken.
In both cases, however, the concerns look past a key quirky point about the iPhone. That is, demand for the device ebbs and flows not so much with the calendar or the economy, but with the device's longevity and capability. Some observers suggest many consumers may be holding out for the iPhone 16, which is widely expected to boast more memory, a better processor, and a superior camera.
In this same vein, Morgan Stanley analysts noted last year that there's incredible "pent-up demand from consumers deferring their iPhone purchase from FY23 [ended in September]." Morgan Stanley's number-crunching further suggests the iPhone's replacement cycle now stands at a record-breaking 4.4 years, meaning many iPhone fans simply can't wait much longer to upgrade their device.
In other words, Apple's iPhone sales could be pleasantly surprising come late 2024. And for what it's worth, even the demand for Apple's iPhone 15 may be better than some of the recent rhetoric suggests. Technology market research outfit IDC reported that after the stock's two big downgrades, fourth-quarter shipments of iPhones jumped to a two-year high of 80.5 million.
Data source: IDC. Chart by author. Figures are in millions.
Perhaps Morgan Stanley's argument for pent-up iPhone demand holds more water than it's getting credit for today.
2. It's cash-rich with modest debt
It might be growth-challenged right now, but there's no company better equipped to shrug off the impact of such a headwind.
As a reminder, Apple isn't just the world's biggest company, sporting a market capitalization of just under $3 trillion. It's also still the world's most profitable company. It turned last fiscal year's revenue of $383 billion into net income of $97 billion, more or less mirroring the prior year's results. That's huge. It's also got a little over $60 billion worth of cash or highly liquid cash-like holdings on its books.
But what about debt? It's sitting on just a little less than $100 billion in long-term debt, and another $49 billion in other long-term liabilities. That's also huge -- by other company's standards. For a business of Apple's size and caliber, however, it's enviable. This mega-company's balance sheet and reliable income stream mean it's not forced to make short-term decisions just to survive, only to create bigger problems down the road.
Said another way, access to current and future cash flow provides Apple with a strategic advantage many of its competitors simply don't have right now.
3. Apple's business model -- and mindset -- is evolving
The third reason to buy Apple stock like there's no tomorrow? It's a bit philosophical, but evident when you make a point of looking for it. That is, the company's business model is evolving from one merely focused on devices to a cultural, solutions-oriented one.
This idea isn't readily evident with just a superficial glance. The iPhone still accounts for a little over half of the company's revenue, after all. Dig deeper, though. Apple's doing things to expand its digital ecosystem that drives a combination of hardware and software sales.
Yes, the growth of its services arm is an example of this shift. While digital goods and services may only account for about 20% of its total top line, profit margins for this business are about three times wider than they are on sales of physical products. This is only a sampling of the paradigm shift underway, however.
Consumer-oriented cloud storage, high-performance video gaming, the continued development of its virtual reality tech called Apple Vision (despite any apparent meaningful demand for it), ongoing tinkering with artificial intelligence, and even semi-autonomous vehicles are all projects still on Apple's plate, even when they don't have to be.
This degree of speculative R&D is relatively new for Apple. Perhaps without even fully knowing how or when these efforts might pay off, the company is positioning itself to be an important technology player in an ever-changing future.
4. The most important reason is still the most important reason
The fourth and final reason to step into new stakes in Apple stock right now, however, isn't a new one at all. That is, this is still Apple. Its brand and name remain among the world's best-known -- and for good reason. It's fostered incredible loyalty to its products and services by building superior products and delivering superior service. Its tech just works.
That doesn't necessarily mean the stock's immune to an occasional bout of weakness. It's gone nowhere for the past six months, as a reminder, and was recently on the receiving end of a couple of key analyst downgrades -- analysts who were concerned about its near-term numbers.
This isn't the sort of stuff long-term investors should sweat too much, though. True long-termers should aim to own stakes in quality companies, using near-term weakness in their underlying stocks to establish those positions. And Apple at its worst is still better than many companies at their best.
In other words, now's your chance to get into a great pick at a bit of a discount.
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James Brumley has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple. The Motley Fool recommends Barclays Plc. The Motley Fool has a disclosure policy.
