Apple (NASDAQ: AAPL) stock was one of the market’s best-performing investments in 2020. Shares in the company returned almost 100%, excluding dividends, throughout the year as the group benefited from the increasing demand for its consumer electronics products. It also continued to generate enormous amounts of cash, despite headwinds from the pandemic.
However, this year, the trend has reversed. Investors have been selling Apple stock over the past few months due to concerns about its valuation and rising interest rates. Over the past month, shares in the company have fallen 14%. Year-to-date, the stock is off 10%.
I think this could be an excellent opportunity for me to buy shares in this business at an attractive valuation.
As this is a US-listed business, all of the above figures are in dollar terms. Due to the exchange rate fluctuations over the period, sterling returns may differ. The difference in exchange rates is something investors will need to consider before investing in US equities.
Apple stock for the long term
Apple is a tremendous business. Despite the high cost of its products, its brand is so powerful consumers are prepared to pay over the odds to buy its phones, laptops and wearables.
And once consumers are part of the Apple ecosystem, it can become difficult to leave. Photos and downloaded media are challenging to transfer to another operator.
Further, there’s more to Apple than its phones, tablets and laptops. Its services division, which offers cloud storage and music downloads, provides tens of billions of dollars in revenues to the group every year. For the same reasons outlined above, this division’s revenues are relatively sticky because consumers can find it difficult to go elsewhere.
Based on these factors, I think Apple stock could be a tremendous long-term investment.
That’s not to say the company doesn’t face any risks. Regulators are becoming increasingly aggressive towards Big Tech.
It emerged only last week that Europe is planning to charge Apple with antitrust abuse for the first time after competitors complained about its app store policies. It’s unclear how much of an impact these legal challenges could have on the group’s top and bottom lines in the long term.
Then there are technological challenges to consider. Apple revolutionised the smartphone market, but it has fallen behind in recent years. The company has slipped to fourth place in the global smartphone market.
This doesn’t suggest the group’s demise is anywhere near imminent. However, I think it’s something to keep in mind. History is littered with tech companies that once dominated the market but were then overtaken. Blackberry and Nokia are key examples.
Despite these risks, I’d buy Apple stock for my portfolio today. The company is one of the world’s most profitable businesses, and it has shown a preference for returning excess cash to investors with share buybacks and dividends.
As long as it continues to invest in its product (Apple spent a record $19bn on research and development last year), I think the group should be able to stay ahead of its peers.
Rupert Hargreaves owns no share mentioned. The Motley Fool UK owns shares of and has recommended Apple and recommends the following options: short March 2023 $130 calls on Apple and long March 2023 $120 calls on 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.