If you have cash and are on the sidelines waiting for the right time to attack some mega-tech stocks, which one should be at the top of your buy list?
Of the three largest technology stocks in the world – Apple (NASDAQ :), Amazon (NASDAQ :), and Microsoft (NASDAQ 🙂 – our favorite choice is Apple. The iPhone maker has seen its stock fall by more than 15% from its January peak when investors sold high-growth stocks for fear of higher interest rates.
Apple Weekly Chart.
How long this sell-off will last is a mystery, but there are strong arguments to believe that Apple stock will recover after going through this correction. Here are the three main reasons for our optimistic view:
1. Retail Interest
A big indicator that tells us about the resilience of this bull market is private investor participation in equity investing . A year after the COVID-19 stock crash, individual traders now make up nearly a quarter of US stock trading volume on any given day.
Since the market peaked a few weeks ago, retailers have plowed cash into US stocks at a rate 40% higher than 2020, which was also a record year according to a Bloomberg report. Apple was the most popular purchase for such investors over the past week, according to the report.
With the US government soon to issue checks from its latest $ 1.9 trillion stimulus package, more money will find its way into equity investing. And for retail investors, Apple remains one of the most important targets as the brand appeals to them.
2. Robust Capital Return
For long-term investors looking to earn decent returns through dividends and capital appreciation, Apple stock is an excellent choice.
At $ 196 billion, Apple is in an enviable position to further expand its share buyback program to support its stock. With share buybacks, the value of your Apple assets will increase as there will be fewer shares outstanding and more of the profit will be shared among a smaller number of shareholders.
Warren Buffett, whose investment company is one of Apple's largest shareholders, has benefited enormously from this trend. Buffett has built a $ 120 billion stake in Apple since his Berkshire Hathaway (NYSE 🙂 began buying the stock in late 2016.
Berkshire accelerated its Apple purchases through 2018 and has since reduced that stake, allowing Berkshire to deposit $ 11 billion on sales by 2020. Despite these sales, Berkshire's stake in the iPhone maker grew only as Apple expanded its own share as well. repurchases, reducing the number of shares outstanding.
As Buffett told investors in his 2020 letter last month:
“Despite that sale – voila! Berkshire now owns 5.4% of Apple. That increase was free of charge for us as Apple has continued to buy back its shares. "
3. New Supergrowth Cycle
After a slow growth period for its flagship iPhones, Apple is on the brink of a new supergrowth cycle fueled by its newer 5G-compatible phone models.
In our opinion, the arrival of the iPhone 12 will drive a record increase in sales, similar to the introduction of the first large-screen iPhone in 2014, as millions of existing users are likely to upgrade legacy handsets.
The latest iPhone has the ability to access the next generation cellular network called 5G, which promises faster Internet speeds. In the last quarter, the new iPhone helped increase sales by 57% in China, which has a more developed 5G network.
Apple isn't all about iPhones. Apple's services division, which includes the App Store, iTunes, Apple Music and iCloud, is showing strong growth, diversifying the company's revenue base away from gadgets.
Last year, this division's sales rose to $ 54 billion, more than double the amount it generated in 2016. If the pace of this growth continues, revenues from its services business could exceed $ 100 billion by 2024, according to Evercore ISI analyst Amit Daryanani.
Bottom Line
Buying Apple stock during this downturn is a good strategy, especially for those investors who want to keep the stock for the long term. Apple & # 39; s robust stock buyback plan, the resurgence of iPhone sales and growing services business are some of the factors that will cause stocks to rebound quickly once this bearish period is over.
