Tune Out the Negativity: Apple Will Rise Again Soon
It often pays to be a contrarian in the investment world; it's a good way to pick up quality investments at a cheap price. But sometimes the contrarian instinct can go too far, as it has recently with Apple (AAPL) - Get Report .
Apple is to 2016 what General Motors was to 1956: the company that defines the times we live in. But a rare spate of bad news has caused many analysts to turn against the company.
Have no fear: Apple is still a great company and a superb growth investment that is a solid choice for your retirement portfolio. Even better, it's now selling at a bargain price, having declined more than 10% over the last four months.
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Much of the recent consternation was caused by Apple's second-quarter earnings report, which revealed that iPhone sales had declined year-over-year for the first time. In addition, management issued some relatively bearish guidance for the third quarter, suggesting another very difficult quarter for iPhone sales.
A big part of the drop was ascribed to sluggish demand in China, which is probably the company's second-most important market after the United States itself. Reports surfaced Friday morning indicating that Apple CEO Tim Cook is heading to China to meet with government officials.
It's true that the most recent earnings report was disappointing. The company posted quarterly revenue of $50.6 billion and profits of $10.5 billion, or $1.90 per share. These are down from the $58 billion in revenue and net income of $13.6 billion, or $2.33 per share, in the year-ago quarter.
But the company's gross margin was almost unchanged at 39.4%. International sales continue to build and now account for about two-thirds of the firm's revenue. Apple has made substantial inroads in India and Latin America in recent years.
The recent slowdown of Apple sales in China has more to do with that country's economic ills than with any fundamental problems at the Silicon Valley titan. As China recovers-and it will-Apple sales are set to explode.
The iPhone continues to be the model smartphone that sets the pace in the industry, fending off competition from Alphabet and Samsung, among others. About 84% of iPhones and iPads have updated to iOS 9, which came out less than a year ago. Users of Apple devices tend to be more tech-savvy-making them a promising market for purchasing more devices.
Cook believes that his company "has executed extremely well in the face of strong macroeconomic headwinds." He noted that Apple now has more than 1 billion active devices in use all around the world.
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"We generated strong operating cash flow of $11.6 billion and returned $10 billion to shareholders through our capital return program during the March quarter," said Luca Maestri, Apple's CFO. Also, the Apple board of directors has approved an increase of 10 percent to the Company's quarterly dividend. The yield is now 2.4%
Thanks to the recent price slide, Apple's price-earnings ratio is now below 10. That's a ridiculously low level for the dominant company in America's leading industry.
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This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.
