Although there have been periods in Apple's (NASDAQ: AAPL) history where you would have suffered some gut-wrenching declines in its share price, the overall history of owning Apple stock has been one of ever higher gains.
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Today the technology giant stands at record highs, and its shares have total annual returns above 35% over the last 15 years -- including periods where there have been those sickening plunges. So, we asked three Motley Fool contributors to share why they believe Apple stock remains a buy today.
Image source: Apple.
Look beyond the iPhone
Rich Duprey: Although Apple generates almost two-thirds of its revenue today from the iPhone, it's far from a one-trick pony. First, the iPhone has only been around for less than a decade (we're coming up on its 10-year anniversary this June), showing the tidal shift the smartphone created, and not just for Apple, but for the industry itself. And it's not really showing any signs of aging, either.
Later this year, Apple will be unveiling the latest iteration of this cultural icon, the iPhone 8, and some analysts think the results could be huge as we may be on the cusp of a upgrade supercycle. Because the most recent versions of the smartphone have been improved incrementally, there are millions of users with iPhones that are several generations out, therefore the newest model could be swept along by a tsunami of upgrades, particularly since the latest Samsung Galaxy failed to really wow the market.
Apple, of course, also has its Macs, iPads, Beats, and the usual assortment of tech gadgets we've grown to know over the years, but the real sleeper is its services business, which has been enjoying phenomenal growth. It started from a small base, but it has been piling on double-digit growth rates and has become Apple's second-largest segment behind iPhones, generating more than $24 billion in sales last year (about what all of Facebook (NASDAQ: FB) made last year).
Services has the potential to become a key driver of growth for Apple in the future because it has multiple streams of revenues itself. The segment includes revenue from Apple's digital content, AppleCare, Apple Pay, licensing, and more. Revenue from this division was up another 18% in the first quarter, led by record customer activity in the App Store.
With so many ways to grow in the future, Apple's stock should be considered a buying opportunity.
Image source: Getty Images.
Tim Green: Regardless of what you think about Apple's long-term prospects, it's indisputable that the company is drowning in cash. Despite reporting a revenue decline in 2016, its first since 2001, Apple produced a staggering $52.3 billion of free cash flow. That's down significantly from 2015, but it hardly matters when the numbers are that big.
Years of robust cash generation have led to a swelling of Apple's balance sheet. The company has taken on an enormous amount of debt, about $87.5 billion, to fund share buybacks -- necessary because much of its cash is held overseas. But net of that debt, Apple's balance sheet contains cash and investments totaling $159 billion.
With a market capitalization of about $750 billion, the market values Apple at a little over 14 times free cash flow, or a little over 11 times free cash flow if the net cash is backed out. That's a tantalizing valuation if you believe that Apple can at least maintain its current level of profitability. The iPhone has showed tremendous staying power despite an onslaught of lower-priced competition, and it's certainly not crazy to believe that the status quo will persist.
While moonshots like self-driving cars and augmented reality headsets get a lot of attention, Apple's immense profits and fortress balance sheet are reasons enough to buy the stock.
Image source: Getty Images.
Ambitious capital returns
Steve Symington: It's no mystery that Apple is on a roll, setting company records last quarter for both revenue (up 3.3% year over year, to $78.4 billion) and earnings per diluted share (up 2.4%, to $3.36). But the incredible scale of its capital returns efforts is simply mind-boggling. Apple returned nearly $15 billion to shareholders last quarter alone, for example, including $3.1 billion in dividend payments, $5 billion to repurchase 44.3 million Apple shares on the open market, the completion of an accelerated share repurchase program to retire another 4.4 million shares, and the launch of a new $6 billion accelerated share repurchase authorization that resulted in the initial delivery and retirement of another 44.8 million shares.
All told, Apple has exhausted $201 billion of its current $250 billion capital return program, which itself was most recently expanded by $50 billion following the company's first-quarter 2016 earnings report last May. For perspective, Apple promised investors at the time it would complete that program by the end of March 2018. But given the rate at which Apple has already put so much cash back in the hands of shareholders, and with more than $246 billion in cash and marketable securities on Apple's balance sheet at the end of 2016, I won't be the least bit surprised if it once again increases the size of its capital return program in the coming months.
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Rich Duprey has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Apple and Facebook. The Motley Fool has the following options: long January 2018 $90 calls on Apple and short January 2018 $95 calls on Apple. The Motley Fool has a disclosure policy.