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Stock Pick: Apple Inc. (AAPL)

June 10, 2022
Stock Pick

Apple Inc. is an American multinational technology company. It specialises in consumer electronics, software and online services headquartered in Cupertino, California, United States.

Apple is one of the most recognised brands in the world, has an exceptionally loyal customer base, and has relied on innovation to grow its sales for more than a decade. During Q4 2021, Apple's iPhone had a34-percentage-point share lead over Samsung in the United States. The iPhone’s introduction of 5G capability helped push sales and profits to record highs.

Apple’s $124b revenue by segment as of Q4 2021:

  • iPhone: $71.6b, 58% contribution
  • Services $19.5b, 16% contribution
  • Wearables, home, and accessories: $14.7b, 12% contribution
  • Mac: $10.8b, 9% contribution
  • iPad $7.25b, 6% contribution

The company pays out one of the largest nominal dividends, and it recently announced a $90 billion boost to its share-buyback program. A high dividend payout, combined with fewer issued shares (meaning a higher dividend per share) is ideal for investors looking to invest in safe, dividend-yielding stocks. Apple also has massive cash reserves, further increasing the probability of consistent dividend payouts and share buybacks.

Revenue

  • Average annual revenue growth since 2016 is 11.8% (33.2% in 2021).
  • Revenue of $365.8 in 2021compared to $215,6b in 2016, representing a 70% increase over 5 years for one of the biggest companies in the world.
 Gross profit
  • Steady at around 40% per year
 Free cash flow
  • Apple has massive cash reserves, at around $93b in 2021
  • FCF average growth rate of 13% since 2016
 ROIC
  • Steady around 20% but jumped to 36% in 2021.

Dividends & payout 

  • Dividend yield around 0.6% for the past three years, growing at roughly 10% per year.
  • Payout ratio in the mid 20% range for the last 10 years. 

Debt

  • Apple’s debt is under control. They will probably opt to pay off some debt in the near future due to interest rates increasing.
  • We all know that Apple is a great company that delivers a great product. We are, however, still on the sidelines. We will monitor how the following variables play out over the next few weeks :
  • Famous BigShort investor, Michael Burry, is short Apple. What makes this interaction so compelling, is that the Oracle of Omaha, Warren Buffett, is overwhelmingly bullish on Apple.
  • Apple iPhone cycles are increasing, meaning that people buy newer versions less often.
  • The services segment is picking up speed. It now accounts for 16% of Apple’s revenue. This segment offers massive potential for future growth.

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