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U.S. stock markets were unusually strong in the first half of 2023 as the rally in tech stocks helped add over $4 trillion to the market cap of Nasdaq Composite ($NASX) constituents. In fact, the index rose almost 32% to have its best first-half performance in four decades.
However, markets have weakened in August, and major equity indices have now closed with losses for three consecutive weeks. Apple (AAPL), which is Berkshire Hathaway’s (BRK.B) biggest holding and among Warren Buffett's favorite companies, is down nearly 10% from its 2023 highs.
Incidentally, while all other FAANG stocks still trade below their all-time highs, Apple hit new record highs in 2023, and its closing market cap surpassed $3 trillion – adding a new milestone for the iPhone maker, which was previously the first company ever to have a market cap of $1 trillion and $2 trillion.
While Buffett hasn’t added any more Apple shares in 2023 - and has otherwise been a net seller of stocks in 2023 - I believe that after the recent pullback, AAPL is the ultimate Warren Buffett stock to buy at current levels.
Apple Stock Fell After Fiscal Q3 Earnings
To begin with, let’s look at Apple’s performance in the June quarter. In its fiscal Q3 2023, Apple reported revenues of $81.8 billion, which was 1% lower YoY – and the third consecutive quarter where the company’s revenue fell on a yearly basis. The revenues did, however, come in slightly ahead of estimates – and so did its EPS of $1.26.
The quarterly beat was driven by strength in the high-margin Services business, where revenues rose 8% YoY to $21.21 billion, and Apple now boasts an installed base of over 2 billion devices, along with the prospect of recurring revenues from 1 billion paid subscriptions.
However, disappointed investors turned their attention instead to a steeper-than-expected fall in iPhone and iPad sales for the quarter. Global smartphone sales have been tepid for the last several quarters, as the market has stagnated after the demand bump in 2020 and 2021, when sales of new gadgets soared amid Covid-19 lockdowns and work-from-home trends.
Why AAPL Looks Like a Good Buy Now
After the recent pullback, I believe Apple stock looks like a good buy right now for the following reasons:
- Financially strong companies like Apple tend to outperform the wider markets in periods of economic uncertainty, like the one we're in currently. AAPL, incidentally, was the best-performing FAANG stock in 2022 - and the only constituent in the elite group to outperform the Nasdaq, as investors sought shelter in financially sound companies with strong cash flows and balance sheets.
- After the recent sell-off, Apple’s next-12-month price-to-earnings multiple has dropped to 28.1x. While it does not appear outright cheap, it is much more reasonable than it was before earnings – and is largely in line with where the stock has traded over the last three years.
- The upcoming iPhone 15 launch in September could be a near-term catalyst for Apple stock. Earlier this month, Citi opened a 90-day catalyst watch on Apple, and analyst Atif Malik raised the stock's target price to $240, noting, “Recent U.S. supply chain discussions point to strong replacement cycle potential in [the] iPhone 12 installed base.” Notably, Citi’s analysis shows that since 2016, Apple shares have outperformed the S&P 500 ($SPX) every year between the release of fiscal Q3 earnings and the announcement of the iPhone in September.
What’s Warren Buffett’s View on Apple Stock?
The “Oracle of Omaha” has a very bullish view of Apple, which he sees as a consumer products company and not a tech company.
Currently, the iPhone maker is the single biggest holding for Berkshire Hathaway - and while Buffett did sell some Apple shares in 2020, the legendary value investor said during Berkshire's 2021 shareholder meeting that the decision was “probably a mistake.”
Buffett reiterated his optimism on the stock at this year’s annual meeting, describing Apple as “a better business than any we own."
AAPL Stock Forecast
Wall Street analysts have a Moderate Buy rating on Apple stock.
Of the 29 analysts that cover AAPL, 18 rate it a Strong Buy, 3 a Moderate Buy, and 8 a Hold. While Apple’s stock price had outpaced its average target price heading into its fiscal Q3 earnings, that's no longer the case. The current average price target of $205.07 implies expected upside of 15%, while the Street-high target price of $240 is a premium of 34.6%.
Apple is an iconic brand with appeal across the world, and 2 billion active installed devices. This vast user base is a captive market for Apple as it diversifies into multiple other industries - including the banking space, where it launched a savings account with 4.15% APY. The tech giant is also eyeing the healthcare industry, and as far back as 2019, Cook said that improving people’s health would be "Apple’s greatest contribution to mankind.”
These ventures - along with Apple's foray into augmented reality (AR) headsets, and further expansion into emerging markets like India - could prove to be net positives, though they'll likely take some time to yield results.
With the macroeconomic environment looking somewhat shaky amid rising bond yields, we could see a continued flight to safety among investors - and Apple might see a renewed interest from investors, given its perception as a “safe haven company.”
On the date of publication, Mohit Oberoi did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
