Apple is Short-Term in Trouble but This Makes the Stock for Me a Buy!

Apple (NASDAQ: NASDAQ:) has encountered some short-term difficulties, with its stock showing only a 2% growth since February, lagging behind the S&P 500’s 6% rise. However, these temporary setbacks present a golden buying opportunity for savvy investors. It could be one of the best stocks for the next decade.

Strong Fundamentals Amid Revenue Dip
In Q3 2024, Apple reported a 4.3% year-over-year (YoY) revenue dip, though adjusted earnings per share (EPS) increased slightly. The Services segment saw strong YoY growth, and Mac experienced modest growth, but other areas declined.

Despite these challenges, the revenue slump is likely temporary, driven by high inflation and interest rates in developed economies. As inflation cools and monetary policies ease, consumer demand for Apple’s products should rebound.

Innovations Driving Future Growth
Apple continues to push the boundaries of innovation, investing nearly $8 billion in research and development in Q3. The upcoming WWDC2024 conference on June 10 is expected to showcase a new iOS version featuring generative AI capabilities, which could boost investor confidence and market performance.

Recently, Apple launched the next-generation iPad Pro and iPad Air with the new M4 chip. The iPad Pro, capable of 38 trillion operations per second, highlights Apple’s commitment to AI functionalities. With a 33% global tablet market share, these new products are likely to positively impact Apple’s financial performance.

Compelling Valuation
Apple’s current valuation, with a deep discount, is attractive. Despite recent revenue challenges, the company’s fundamentals are robust. The expected contraction of Apple’s P/E ratio over the next five years indicates that the current valuation is reasonable.

A discounted cash flow (DCF) analysis, using an 8.5% weighted average cost of capital (WACC) and a 6% constant growth rate for the terminal value, suggests a fair share price more than 15% higher than the current price. This discount makes Apple for me a compelling buy.

Potential Risks
Apple faces antitrust scrutiny in the European Union and the United States, which could impact its revenue growth and pricing power. Additionally, geopolitical risks and competition in China, Apple’s third-largest market, pose challenges. However, Apple’s substantial resources and strategic initiatives, such as a price war in China, position it to navigate these obstacles effectively.

Conclusion
With a big discount, Apple stock is a strong buy. The upcoming WWDC2024 and potential easing of monetary policies across developed economies are likely to act as significant positive catalysts. Apple’s commitment to innovation and its unparalleled market position make it a formidable long-term investment for growth.