The stock of Apple (NASDAQ:AAPL) has a 1-month price performance of -6.47%. In spite of this decline, I remain bullish on AAPL.
Apple is a $2.36 trillion company that sells smartphones, tablets, watches, TV boxes, and computers. It also operates the iOS App Store, Apple Music, and Apple TV subscription services.
This company’s stock is trading at a 9.29% discount to its 52-week high of $157.26. (See AAPL’s stock charts on TipRanks)
New Products Show Promise
Apple still gets most of its revenue from iPhone sales. As of June 2021, the iPhone generated almost half of Apple’s $81.4 billion quarterly revenue. The iPhone 13’s launch late last month should boost succeeding quarterly revenue to above $86 billion.
The $699 iPhone 13 mini is priced reasonably, so it could attract customers away from high-end Android smartphones. This mini version could even help Apple improve its 3% market share in India and other developing markets.
The new iPad Mini 2021 product will fortify Apple’s Number 1 status in tablets. It should prove to be popular, as this product’s 8.3-inch display makes it more comfortable to use as a mobile gaming/watching device.
It's realistic to say that the iPad Mini 2021 could help Apple sell 14 million iPads/quarter.
Advertising Revenue
In more good news for Apple investors, the investment quality of AAPL has a little-discussed tailwind called advertising. Google (NASDAQ:GOOGL) paid $15 billion to Apple this year to keep its search engine as the default option on iOS devices.
Last year, Apple received only $12 billion from Google to keep that company’s search engine as the default. That means the double-digit growth rate of Google’s annual search engine payments can boost Apple’s rising TTM net income of $86.8 billion.
The other advertising income is from Apple’s Search Ads on the iOS platform. App publishers, who want to attract more users and in-app spenders, can pay Apple to have their apps promoted through Apple’s Search Ads platform.
Cheaper Valuation Ratios
The recent dip in Apple’s stock price gives it forward P/E valuation of just 25.56x. This is lower than Microsoft’s (MSFT) 33.04x. This undervaluation of Apple is unfair, given that Microsoft (NASDAQ:MSFT) has zero smartphone hardware business. Microsoft also does not have a thriving iOS App Store.
Moreover, Apple’s Piotroski F score is 7, denoting that it is strong financially and presents good investment value. Additionally, the total cash position of Apple is $61.70 billion. This is greater than its short-term debt of $8 billion.
The net operating cash flow is $104.41 billion, indicating that there is minimal chance that Apple will stop its dividend payments.
Wall Street’s Take
The consensus among Wall Street analysts is that AAPL is a Strong Buy, based on 19 Buys and 6 Holds. The average Apple price target is $169.64, implying 18.92% upside potential.
Conclusion
The industry leadership of Apple in smartphones and tablets makes it a very attractive investment.
The new iPhone 13 series of smartphones will likely protect Apple’s unsurpassed status as the world’s most profitable company.
Disclosure: At the time of publication, Motek Moyen did not have a position in any of the securities mentioned in this article.
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