Apple (AAPL, Financial) is a stock that can’t be out of news, and the latest news is not very positive for shareholders, at least in the near-term. Apple reported a decline in sales for the first time in 13 years with sales declining by 12.7% on a year-over-year basis to $50.6 billion. This article discusses if Apple is worth holding or buying after the disappointing set of results.
The first point that I want to mention is that the stock is certain to react negatively in the very near-term, as investors digest results that were not in sync with analyst estimates. However, this near-term trend is unlikely to be the deciding factor, and there are other factors that will play a role in determining the stock direction.
Apple is not currently trading at expensive valuations. The stock trades at TTM PE of 11 and forward PE (September 2017) of 10.5. The PE itself suggests that markets don’t see Apple as a growth stock anymore, and I am in complete agreement with this point. If Apple witnesses further correction in the coming weeks, the stock will be trading at forward a PE valuation that are below double digits, and that makes Apple attractive.
The second point is that Apple users will be looking forward to the much anticipated release of iPhone 7, and it is entirely likely that iPhone sales have been relatively depressed because of that reason. The release of iPhone 7 will put into perspective the potential demand for Apple phones and the impact of economic headwinds on iPhone sales. It also remains to be seen if the lower priced phones help in volume growth in markets like India, where Apple product sales are on a rise, but still not significant as compared to China.
The third point that is important to note is that Apple currently has dividend payout of $2.08 per share, which translates into a dividend yield of 1.97% at current prices. In my view, the dividend payout will continue to increase in the coming years, and I increasingly see Apple as a quality dividend stock that investors can hold in the portfolio. It is important to again emphasize here that Apple is not trading at rich valuations and it underscores the point that market participants increasingly look at Apple as a dividend stock than growth stock. Further, Apple will create significant value through share buyback in the coming years.
In conclusion, Apple is likely to witness few bearish days or weeks, but I don’t see a big drop in the stock, and I expect the stock to stabilize and trend higher once the new product pipeline is announced. In the near-term, the iPhone 7 is likely to be the make-or-break moment for Apple as it is an event market participants will be closely watching.
If Apple does trade around $90, it can be considered as a good buying opportunity and a review of this recommendation will be due after iPhone 7 is released and the sales response is analyzed.
Disclosure: No positions in the stock.
