Apple Stock Is Down 20% From Its High. Time to Buy? – The Motley Fool


- Advertisement -

Founded in 1993 by brothers Tom and David Gardner, The Motley Fool helps millions of people attain financial freedom through our website, podcasts, books, newspaper column, radio show, and premium investing services.
Founded in 1993 by brothers Tom and David Gardner, The Motley Fool helps millions of people attain financial freedom through our website, podcasts, books, newspaper column, radio show, and premium investing services.
Motley Fool Issues Rare “All In” Buy Alert
You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More
Apple (AAPL 1.16%) shares reached an all-time high in January 2022, coming off a stellar year for the tech industry in which the COVID-19 pandemic led homebound consumers to invest heavily in home office and entertainment devices.
However, the rest of the year hasn’t gone as well. While 2022 started off on a high, increases in inflation have severely stunted consumer spending, leading to a stock market sell-off. 
Although Apple shares have dipped 20% year to date, the iPhone manufacturer has fared better than most tech companies this year. For instance, Netflix and AMD shares are down more than 50% year to date. Despite a slowdown in spending in multiple industries, Apple has retained strong demand and sales of its products. 
Here’s why Apple is a stellar buy during a stock dip. 
Apple posted its 2022 fourth-quarter earnings on Oct. 27, reporting a year-over-year revenue rise of 8.1% to $90.15 billion, which beat analysts’ expectations by $1.38 billion. Operating income came in at $24.89 billion, rising 4.6%. 
The company’s growth stemmed primarily from high demand for its iPhone 14 lineup, launched in September, and products within its Mac segment.
According to IDC, worldwide smartphone shipments declined by 9.7% in the last year, while PC shipments similarly fell 15%. However, Apple reported 9.6% revenue growth in its iPhone segment, hitting $42.6 billion, and a 25.3% rise in revenue for its Mac segment to $11.5 billion. 
In addition to defying market declines, Apple has retained a promising amount of free cash flow compared to the competition. Free cash flow has become a crucial metric this year, as the higher the figure, the better equipped a company will be to overcome a potential recession in 2023.
Apple’s free cash flow is considerably higher than its peers’, as seen in the table below. 
AAPL Free Cash Flow Chart
Data by YCharts
With $111.4 billion in free cash flow, Apple appears to have what it needs to get through further economic declines and continue investing in its business. 
At the moment, prospective investors might be most concerned over Apple’s reliance on China for its iPhone production. The country has suffered a spike in COVID-19 cases, resulting in new regulations. Factories can remain open, but workers must live on-site. There has been considerable pushback from workers, slowing production at Foxconn — the plant responsible for 70% of iPhone shipments.
iPhone sales made up 52% of Apple’s revenue in its fiscal 2022, fueling investor concern over potential production delays. However, it’s important to keep a long-term perspective when adding to your portfolio.
In addition to Foxconn coordinating backup production with other plants, Apple is making moves to diversify its production. The company is now making some iPhone 14s in India, with JP Morgan Chase estimating about 25% of all Apple’s products will be produced there by 2025.
Additionally, Apple has developments in the works that could grow the percentage of revenue it receives from other segments. For instance, Services, which includes platforms such as Apple TV+, Music, iCloud, and more, is a quickly growing segment for the company.
Services revenue rose by 14% to $78 billion in Apple’s fiscal 2022, bringing in the second-largest portion of revenue after the iPhone. As the company’s services business continues to grow, it may take pressure off of Apple’s iPhone segment, giving the company time to find a more reliable source of production.
Moreover, numerous reports state Apple is hard at work creating an augmented/virtual reality device that could enter the market as early as 2023. The $25.33 billion augmented reality market is expected to see a compound annual growth rate of 40.9% until at least 2030, according to Grand View Research. With
Apple has a history of entering new markets and quickly dominating, as it did with tablets, Bluetooth headphones, and smartwatches. So, I wouldn’t bet against it doing the same with augmented or virtual reality and diversifying its revenue further.
Apple may face short-term headwinds in a potential recession in 2023 and reduced production in China. However, Apple should be an excellent long-term investment with a price-to-earnings ratio of 23.5 and a stock that has risen 237% in the last five years despite recent market declines. 
Dani Cook has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Apple, and Netflix. The Motley Fool recommends the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.
*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.
Market-beating stocks from our award-winning analyst team.
Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 11/30/2022.
Discounted offers are only available to new members. Stock Advisor list price is $199 per year.
Calculated by Time-Weighted Return since 2002. Volatility profiles based on trailing-three-year calculations of the standard deviation of service investment returns.
Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool’s premium services.
Making the world smarter, happier, and richer.

Market data powered by Xignite.


- Advertisement -


Please enter your comment!
Please enter your name here

Share post:




More like this

Ghana, creditor panel agree on debt restructuring, paving way for IMF cash

Ghana has finalised a pact with its official creditor...

Nigeria strikes deal with Shell to supply $3.8 billion methanol project

Nigeria has struck a deal for Shell (SHEL.L), opens new...

Africa’s $824 billion debt burden and opaque resource-backed loans hinder its potential, AfDB president warns

Africa's immense economic potential is being undermined by non-transparent...

IMF: South Africa needs decisive efforts to cut spending

South Africa needs more decisive efforts to cut spending...