IN the slow growth world that looks set to stay for a while, an expensive phone might not be at the top of everyone’s list of priorities. In a way though, that’s not the point. If enough consumers do see Apple’s latest products as must-haves, what was once a luxury product may start to behave more like a consumer staple.
Cash-strapped times or not, Apple iPhones continue to take market share from their Android competitors1. Customers clearly remain loyal to the brand and its long term record of innovation.
That leaves Apple shares looking expensive when using some conventional measures. Investors clearly believe the company is worth much more than the sum of its tangible assets because it continues to grow and its customers are sticky.
In its latest quarterly results, Apple grew sales of its iPhone faster than many were expecting and an even better performance this quarter could lie in wait as supply chain issues relent. Record earnings of $83 billion last quarter demonstrate just what an immense business Apple has built2.
This is all to the good. Apple continues to cement its position as the world’s largest listed company and one that investors globally take a particular interest in.
However, this hasn’t prevented Apple taking part in the general slide in stock markets since the start of this year – including falls last night across US markets – albeit the falls afflicting Apple have been limited compared with many other tech stocks. Expectations that consumer demand will slow as economies weaken have been paramount.
This month’s launch of the iPhone 14, iPhone14 Pro alongside the Apple Watch Ultra may not have caused as much of an international stir as in previous years, but it was still a noteworthy event. The iPhone remains Apple’s key product, and whether consumers continue to upgrade their phones at a fast rate will be keenly watched going forward.
Apple pays a dividend these days and so far looks like it has the potential to hang onto customers even when the going gets more difficult, although obviously a deep recession would test this.
That suggests we ought to consider Apple to be more of a defensive growth stock as opposed to the out-and-out growth stock it once was – so with more risk than a consumer staple but better growth prospects.
The problem, or opportunity, depending on your point of view, is that bear markets can drag shares down to levels they don’t really deserve to be at, as the multiples of earnings investors are prepared to pay for them also falls.
That, in essence is the crux of the dilemma for many of America’s tech giants. Two of America’s fast growing “FAANG” stocks – Meta and Netflix – along with PayPal have recently been reclassified as value stocks in the US since their shares have fallen3.
This suggests, perhaps, that investor sentiment has become overly depressed. As worthy options for investors seeking long term growth at a reasonable price, the number of high-profile tech names continues to mount.
Source:
1 Counterpoint 25.08.22
2 Apple Inc 28.07.22
3 ETF Stream 27.06.22
