It was an unusual day for the markets yesterday as most US stocks declined. Big Tech companies didn’t escape the drop, with Alphabet (Google’s parent company) falling 2.5%, and Meta (previously Facebook) slipping 4%. Apple (NASDAQ: AAPL) bucked the trend though. In fact, Apple stock rallied over 3% on the day.
It’s quite unusual for one technology stock to rise on no specific news while all others fall. Particularly as the technology sector outperformed during the pandemic as a stay-at-home culture meant its services were in high demand.
So as fears grow over the Omicron strain of Covid, is it time to buy Apple stock? Let’s take a look to see if it’s a buy for my portfolio.
Apple’s war chest
It was a typical ‘risk-off’ day in the markets yesterday. Stock prices declined as equities are generally seen as riskier investments. Then, government bond yields fell, meaning the prices of these bonds rose. This is another sign that investors were seeking less risky investments.
So, was the Apple stock rise a case of investors buying a safe-haven asset, such as a lower-risk government bond?
I think it might have been. This is because Apple has a huge war chest of cash on its balance sheet. In the company’s latest financial statements, Apple’s cash value stood at a huge $35bn. Taking into account the exchange rate, this is greater than the market value of 76 companies in the FTSE 100.
This cash value does mean Apple has a significant safety net in its business. On any potential share price weakness due to the Omicron variant, Apple could buy back a significant amount of its shares. A share buyback is another way of returning cash to shareholders, and in doing so the company’s earnings on a per share basis will rise.
Is Apple stock a buy?
It’s all very well having a lot of cash on hand. But I also look for companies that are fairly valued and growing.
Apple’s current revenue forecast for 2022 isn’t exactly exciting, being under 4% as I write. Earnings are even less impressive as net income is estimated to decline by around 2% over this period.
In terms of Apple’s valuation, the forward price-to-earnings ratio is 29. I view this as particularly high for a company that has such a low growth forecast (with net income even expected to decline).
Therefore, my concern with Apple is its high valuation relative to its growth forecasts. I previously wrote about Apple’s push into the electric vehicle market, which may be an opportunity to boost growth in the future. This would be a significant pivot for Apple’s business though, and at lower margins than the company is used to achieving.
So, for now, I don’t think Apple stock is a buy for my portfolio. There are other stocks that I think are worth considering.
Dan Appleby owns shares of Meta. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. The Motley Fool UK has recommended Alphabet (A shares) and Apple. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.