Actions of Apple (NASDAQ: AAPL) have been clubbed in the past few weeks with the wider market. The tech giant’s stock price has dropped 31% since February 19. This is roughly the 34% drop in the S&P 500 over the same period.
The global coronavirus epidemic, and its likely negative impact on short-term sales and the economy, is of course the main reason for the sharp drop in Apple’s stock. While investors have good reason to expect companies like Apple to face headwinds amid this pandemic, has the tech giant’s sales gone too far?
Arguably, Apple stocks were oversold in this market downturn, offering opportunistic investors an attractive entry point below $ 225 per share.
Here are four reasons why investors can consider buying Apple stocks now.
1. The second biggest segment of Apple could see a boost
Perhaps one of the biggest concerns of investors in tech stocks, especially those selling tech equipment, is how the coronavirus pandemic will affect global supply chains and shipments. Apple is not immune to these concerns, as its supply chain spans many countries. The company has already warned that it will miss its revenue forecast for the second fiscal quarter, citing production challenges and weaker demand in China.
Fortunately, however, Apple has become much more than a tech hardware company. Indeed, the second segment of the technology giant after the iPhone is now its service activity. The segment includes revenue from digital sales and subscriptions in the App Store, advertising and services like iCloud, AppleCare, licenses, etc.
This service activity is booming, fueled by an installed base of active devices that exceeded 1.5 billion at the end of 2019 – up more than 100 million compared to the end of 2018.
Technology business services revenue increased 17% year-on-year in the first quarter of fiscal 2020 (the fourth calendar quarter of 2019), driven by double-digit growth in all geographic segments of the company. With more people spending time at home in the midst of the coronavirus epidemic, it would not be surprising to see Apple’s service revenues increase during this time.
2. Income from connected objects skyrockets
While Apple’s hardware supply chain issues during this pandemic are likely to slow production and temporarily hurt sales, investors should not ignore Apple’s hardware segments completely. Even with a slowdown in production and the closure of Apple retail stores in certain markets, there is still a product category that could continue to experience sales growth: wearable devices or sales of Apple Watch, AirPods and Beats products .
Apple’s wearable device business is still in its infancy, and these products could still experience double-digit year-over-year sales growth, even after being affected by chain problems. supply and retail store closings. Highlighting the segment’s rapid growth, wearable sales increased 44% year-on-year in the first fiscal quarter.
3. Apple products are more important than ever
While supply restricts iPhone production and lower demand for smartphones may ultimately lead to year-over-year revenue decline in Q2 and Q3 fiscal years, this coronavirus epidemic is providing more intrinsic value elevated to the devices we use to connect to the Internet and ultimately do our jobs, communicate with others, and enjoy digital entertainment.
When the coronavirus is finally removed and the economy rebounds, Apple could benefit from increased investment by consumers and businesses in the technology we use every day. This could benefit sales of iPhone, iPad and Mac.
4. The tech giant is rich in cash
Finally, healthy balance sheets and profitability become more important in times of uncertainty. On this front, Apple stands out as a tech company ready to face just about any storm. The company has close to $ 100 billion in net cash and generates substantial free cash flow – the cold and hard cash remaining after regular operations and the reinvestment of hedged businesses. Free cash flow over 12 months was $ 64 billion, easily justifying Apple’s market capitalization of nearly $ 1 trillion.
Investors who buy Apple stocks today, of course, should be ready to watch the stock price go down further. It is almost impossible to buy at the exact bottom. It is therefore good to anticipate more volatility to come, especially in these times of uncertainty. But chances are, in a few years, Apple’s shares below $ 225 will look like a great entry point.