No U.S. company is more exposed to China and tariffs than Apple Inc. (NASDAQ: AAPL). The media elite’s favorite tech company depends on China for both revenue and production.
Almost half of all iPhones are manufactured in just one Chinese city Zhengzhou,The China Daily pointed out. Since the iPhone is Apple’s signature product and main cash cow, tariffs like those proposed by President Donald J. Trump (R-New York) present a real threat.
Apple sold 77.3 million iPhones worth $61.6 billion (£52.63 billion) in 4th Quarter 2018, The South China Morning Post reported. Such figures explain why how just the threat of tariffs can cause Apple’s share price to drop.
China Owns Apple and that’s Good for Apple Shareholders
Revenues might be a greater threat to Apple than production which theoretically be moved. Apple generated $13.02 billion (€11.12 billion) in revenue from Greater China; the People’s Republic, Taiwan, and Hong Kong, in 1st Quarter 2018, Statista reported.
Greater China is Apple’s third most important market behind the Americas ($24.84 billion or €21.22 billion) in revenues in Quarter 1) and Europe ($13.85 billion or €11.83 billion in revenues in 1st Quarter). The great danger is that China is the engine driving Apple’s revenue growth.
iPhones made up one third of the smartphones in China in 2017, Newzoo reported. Apple products accounted for 11% of the smartphone sales in China in 2017.
Such figures why Tim Cook shows much interest in China he knows that Apple Inc. would not survive without that country. Chinese buyers are responsible for much of the 11% revenue increase at Apple in 2017.
Apple’s future business plan depends on selling more expensive gadgets like iPads to China’s fast growing middle class. The number of middle class people in China is expected to grow from around 430 million today, to 780 million by around 2025 (just seven years from now), Foreign Policy reported. That means there are lot of potential iPad, Mac, iPod, and iPhone buyers in the People’s Republic.
This partially explains the growth in iPad sales which expanded by 6% in 2017. Apple CFO Luca Maestri estimated that “new and switching users made up over 70 per cent of all iPad sales” in the Greater China market in 4th” Quarter 2018, The South China Morning Post reported.
Yes, Apple is a Value Investment for the Age of Trump
The close connection with China makes Apple a value investment even in the age of Trump.
President Donald J. Trump’s (R-New York) so-called trade war with China is shallow and superficial. Despite the media hype, Trump has actually put more tariffs on Europe, Canada, and Mexico than China, The Washington Post reported. The Donald seems to be more interested in making trade deals with Beijing than tariffs which is good for Apple.
Even if Trump is serious about tariffs, he will probably be back at Mira Lago full time in 2021. The next US Presidential election is a little over two years away and 51.1% of voters disapprove of Trump’s performance. Around 42% of voters actually told pollsters that they wanted Trump impeached or removed from office immediately, Newsweek reported.
The likelihood of the Trump administration continuing beyond January 2021 is limited. That bodes well for Apple because it probably means a friendly trade environment for the next two and a half of years of the Trump administration and beyond.
The trade environment will remain friendly because Trump will need lots of money from big business interests that benefit from China such as the Koch brothers if he wants reelection. Only drastic changes to the political environment or complete incompetence on the part of Democrats would ensure Trump reelection.
Apple is a Great Value Investment
Apple’s bright future makes it a great all-around value investment. Like any good value investment, Apple is making a lot of money right, and poised to make more money in the future.
Apple reported revenues of $63.137 billion (€53.95 billion) and a gross profit of $23.422 billion (€20.01 billion) for 1st Quarter 2018, Stockrow data indicates. Those figures gave Apple an operating income of $15.894 billion (€13.58 billion) and a net income of $13.822 billion (€11.81 billion) for the 1st Quarter.
More importantly, Apple is a cash-rich company it reported an operating cash flow of $15.13 billion (€12.93 billion) and a free cash flow of $11.089 billion (€8.62 billion) for 1st Quarter 2018. Apple is also in a potential to generate a lot of cash from finance, it reported an investing cash flow of $28.71 billion (€24.53 billion) for 1st Quarter 2018.
All this made Apple an incredibly cash rich company; it reported $45.059 billion (€38.5 billion) in cash and equivalents, and $87.94 billion (€75.14 billion) in cash and short-term investments on March 31, 2018. Apple now has the money to buy a major automaker if Tim Cook is serious about bring out an Apple Car.
Apple is undervalued
The cash figures indicate that Apple was undervalued at the $185.11 (€158.17) a share it was trading at on 29 June 2018. My conclusion is that AAPL should be worth $400 (€341.78) or $500 (€427.22) a share.
That means there is a lot of room for growth and a great dividend at Apple. Apple shareholders received a dividend of 73¢ (€0.62)a share on 11 May 2018. The dividend was up 10¢ (€0.085) from February 2018 when it was 63¢ (€0.54) a share and up 13¢ (€0.11)from February 2017 when it was 57¢ (€0.49) a share.
The growing dividend, incredible amount of cash, great business, and bright future make Apple the best widows and orphans stock around today. If you need an income stock to add to your portfolio for the long-haul, you should certainly take a close look at Apple.
