Many investors might be burnt out on choosing stocks to trade. But before investors get too discouraged and give up on choosing the right stock, they should think about this idea. This stock’s underlying company offers both resilience in the form of a strong balance sheet, huge cash flows and impressive long-term growth possibilities. This stock idea just happens to be Apple. Though the business may be popular, its shares are arguably highly underappreciated.
Perhaps one misconception traders who don’t follow Apple well might have is that the business must be growing slowly given its large size. After all, Apple has an almost $3 trillion market cap. “Aren’t its growth days in the past?” some traders may ask this. But this is far from the truth. Despite a global operating environment that can be challenging, Apple’s earnings grew 33% in its fiscal year 2021 — a 1 year period ending in Sept. And this growth would’ve been at an even faster rate if it weren’t for supply shortages that led to billions in lost earnings over this period.
Further, Apple’s momentum in sales is broad-based. In the trailing year ending September 25, 2021, Apple’s Mac, iPad, iPhone and services earnings increased 39%, 23%, 34%, and 27%, respectively. The company’s combined sales from smart speakers, wearables and other accessories had a 25% growth year over year.
Strong cash flows
But Apple does not only give traders access to growth, it also provides them a stake in powerful free cash flows. The tech giant’s trailing 1 year period free cash flows was a whopping $93 billion — up from around $73 billion 1 year earlier and $59 billion two years ago. On top of the free cash flow the business has a net cash position of $66 billion.
All of this cash provides Apple a lot of options in the way that it invests in order to raise shareholder value. In the company’s Sept-ending fiscal year 2021, Apple deployed $11.1 billion in capital expenditures, payed $14.5 billion in dividends to its shareholders, and repurchased almost $86 billion worth of its own shares.
That last point about what Apple could do with its cash is the key. By repurchasing its shares so aggressively with extra cash, Apple is boosting the amount of claim each share has to the tech company’s business. And because Apple was able to rebuy all of these shares at lower prices than where the stock is currently trading, those rebuys have had a big positive impact on per-share intrinsic value. Going forward, since the Apple stock still seems undervalued, continued rebuys will likely contribute more to building shareholder value.
There are a lot of risks, of course. First and foremost, it is unlikely that Apple will keep up the levels of growth it served traders in 2021; if growth slows down too rapidly, this might be a concern. Further, while Apple’s growth is broad-based, the business is still largely reliant on the iPhone. The product segment accounted for over half of its fiscal 2021 earnings.
Overall, Apple is an excellent stock pick for next year and beyond because it provides both resilience and strong growth possibilities.
Author: Blake Ambrose