Coronavirus could threaten any stock; including Apple (NASDAQ: AAPL). Apple hardware sales fell from $31.1 billion in second quarter 2019 to $28.96 billion in 2nd Quarter 2020.
Incredibly, Mac, iPhone, and iPad sales all fell because of coronavirus, TechCrunch claims. In particular, Apple Stores, the most company’s visible sales channels, are closed.
However, Apple’s revenue from services grew from $11.5 billion in 2nd Quarter 2019 to $13.3 billion in second quarter 2020, TechCrunch estimates. Those services include Apple TV+ and Apple Music.
Predictably, Apple’s sales of wearable and home products are growing. For example, HomePod sales roses from $5.1 billion in 2nd Quarter 2019 to $6.3 billion in 2nd Quarter 2020, TechCrunch estimates. Additionally, Apple’s wearable hardware sales rose from $11.5 billion to $13.3 billion in the same period.
Thus, I think Apple will need to change its business model to deal with coronavirus.
How Coronavirus could Help and Hurt Apple
Additionally, coronavirus-caused supply chains problems could delay the release of the 5G iPhone for a month, TechCrunch claims.
I do not think a 5G iPhone delay will hurt Apple because stay-at-home will reduce demand for new phones. To explain, socially conscious people are stuck at home so they have no need to impress their friends and coworkers with a fancy new phone.
However, I think HomePod, AirPods, and Apple Watch delays could hurt Apple. To elaborate, those products are in demand because of Coronavirus.
People want Apple Watches to monitor their health for coronavirus symptoms, for instance. Moreover, people want AirPods to block out the bullshit their relatives are discussing at home. Plus, families stuck at home could want a HomePod.
Thus, coronavirus is both a crisis and an opportunity at Apple. The opportunity is more demand for its products and services. The crisis is disrupted supply chains and lower demands for some products.
For example, an office worker no longer wants an iPhone to play with on the train during her commute. However, the same office worker now wants a HomePod to make life more comfortable at home.
Coronavirus is good for Apple Pay
Interestingly, coronavirus is speeding the adoption of Apple Pay. For example, UBS Group AG (NYSE: UBS); Switzerland’s largest bank, could finally support Apple Pay, 9 to 5 Mac claims.
UBS has avoided Apple Pay because of security concerns. However, a Tweet indicates UBS could soon support Apple Pay.
Similarly, Australia’s second largest bank, the Westpac Banking Corporation (NYSE: WBK) began supporting Apple Pay on 28 April 2020, Geek Crunch Reviews reports. Thus all of Australia’s Big Four banks; NAB, Westpac, Commonwealth Bank, and the Australia and New Zealand Banking Group (ANZ) support Apple Pay.
Hence, Apple Pay now is available to almost all Aussies because most Australians bank with one of the big four. WestPac started supporting Apple Pay because of Coronavirus concerns.
To explain, many people want to avoid contact with cashiers and bank tellers out of fear of coronavirus exposure. Furthermore, many people fear paper cash could spread the COVID-19 virus.
How Trump and Trade War could Hurt Apple
President Donald J. Trump’s (R-Florida) childish trade war could hurt Apple (NASDAQ: AAPL).
The Chinese government could hamstring Apple’s operations with regulatory action, Newsweek claims. Chinese regulators could target Apple in retaliation for the Trump administration’s plan to block semiconductor shipments to Chinese telecom behemoth Huawei.
“China will launch rounds of endless investigations on those firms, just like swords hanging over their head,” the Chinese newspaper Global Times claims. “It will dampen investors’ confidence and squeeze their income in the Chinese market.”
The US Department of Commerce is prohibiting American semiconductor and other electronics shipments to Huawei. Trump administration officials believe Huawei is too big and too powerful.
How Trump and China can hurt Apple
The Chinese government could hurt Apple by closing Apple stores in China, restricting iPhone sales in the People’s Republic, or by limiting exports from Apple’s Chinese factories. Chinese officials hope to pressure Trump by cutting into Apple’s profits leading Wall Street to turn on the President.
Meanwhile, Trump needs to be seen as tough on China to embolden his rabidly nationalist base. However, Trump’s actions could backfire because most Americans love iPhones but care little about China.
I predict Trump will back off if Apple’s prices rise or shortages of Apple products develop. I think the last thing the Donald wants is a shortage of Apple products in the weeks leading up to Election Day.
Apple is still a Moneymaking Machine
Apple Inc. (NASDAQ: AAPL) is still a moneymaking machine. For example, Amazon reportedly a quarterly gross profit of $22.37 billion on revenues of $58.313 billion on 31 March 2020.
In contrast, Apple reported a quarterly gross profit of $21.821 billion and quarterly revenues of $58.015 billion on 31 March 2019. Thus, Amazon’s revenues and gross profit grew slightly from last year.
Additionally, Apple reported an operating income of $12.854 billion and a common net income of $11.249 billion for the quarter ending on 31 March 2020. In comparison, Amazon reported a quarterly common income of $11.561 billion and a quarterly operating income of $13.415 billion a year earlier.
Thus, Apple’s financial numbers have not changed much over the past year. I think that makes Apple a value investment because it proves Apple can make money under difficult conditions.
Moreover, Apple’s revenue growth last quarter was somewhat better than in 2019. To elaborate, Stockrow estimates Apple’s revenues at a rate of 0.51% in the first three months of 2020. Comparatively, Apples’s revenues shrank by -5.11% in the first three months of 2019.
How Much Cash is Apple Generating?
It is easy to see why Warren Buffett admires Apple Inc. (NASDAQ: AAPL). Apple still generates vast amounts of cash.
For instance, Apple reported an operating cash flow of $13.311 billion, an investing cash flow of $9.013 billion and an ending cash flow of $1.384 billion on 31 March 2020. In comparison, Apple reported an $11.155 billion operating cash flow, a $13.348 billion investing cash flow, and a negative ending cash flow of -$4.954 billion a year earlier.
In the final analysis, Apple is still a cash-rich company. Apple had $94.051 billion in cash and short-term investments on 31 March 2020. That number grew from $80.092 billion on 31 March 2019.
I conclude Apple has a high margin of safety because it generates and keeps vast amounts of cash. Those seeking a safe stock for our chaotic age need to examine Apple.
Is Apple Overpriced?
I think Mr. Market fairly priced Apple (NASDAQ: AAPL) at $319.23 on 20 May 2020.
Moreover, Apple’s shareprice has held up well during the pandemic. Apple started 2020 at $300.35 on 2 January, fell to a low of $224.37 on 23 March 2020, and rose of $307.71 on 15 May to $315.83 on 19 May 2020 to $319.23 on 20 May 2020.
Hence, Mr. Market shows Apple is a safe stock that keeps most of its value, even in the face of extreme events.
Apple is Still a Value Investment
I think Apple (NASDAQ: AAPL) is still a value investment because it is safe and retains its value.
Moreover, I consider Apple a great dividend stock. Apple shares paid an 82₵ quarterly dividend on 8 May 2020. That dividend grew by 5₵ from 77₵ paid on 7 February 2020.
Overall, each Apple share offers a 1.07% dividend yield, an annualized payout of $3.28, and a payout ratio of 26.61%. In addition, Dividend.com credits Apple with seven years of dividend growth.
The Value at Apple
Moreover, Apple is one of a collection of tech stocks I call the NAMPOF. The NAMPOF consists of NIVIDIA (NASDAQ: NVDA), Apple, Microsoft (NASDAQ: MSFT), PayPal (NASDAQ: PYPL), Oracle (NYSE: ORCL), and Facebook (NASDAQ: FB).
The NAMPOF is my alternative to the overvalued FANG; (Facebook, Amazon (NASDAQ: AMZN), Nefltix (NASDAQ: NFLX), and Google (NASDAQ: GOOG). I envision the NAMPOF as a collection of tech favorites; Apple and Facebook, a potential growth leader PayPal, and the underappreciated (Microsoft, Oracle, and NVIDIA).
If you are looking for a safe value investment that is fairly priced and pays a nice dividend, Apple is worth considering. In conclusion, the world’s most popular device manufacturer is still a great stock even for the coronavirus age.
Originally published at https://marketmadhouse.com on May 19, 2020.
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