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In a May 8, 2023, Barchart article, I wrote that AAPL is “the stock of choice” for my granddaughters to build wealth for their futures. On May 8, AAPL shares were at the $173.67 level. After rising to a new all-time high in July 2023, the shares corrected and were at the $175 level on September 14, slightly higher than in early May 2023.
I believe selloffs in AAPL are a buying opportunity. Still, as a volatile technology and consumer stock with significant international exposure, I will leave plenty of room to add at lower levels if the shares continue to correct.
AAPL remains the most valuable company
Apple shares declined 11.7% from the July 19, $198.23 record high to the $175 level on September 14. However, the company continues its value leadership.
Source: companiesmarketcap.com
The chart shows that AAPL leads the six companies in the trillion-dollar club with an over $2.7 trillion market cap. At the high, AAPL was worth more than $3 trillion.
China and geopolitics present challenges for Tim Cook’s company
China has been critical for AAPL’s growth and profitability. A January 2023 Forbes article outlined Apple’s reliance on China, “More than 95% of iPhones, Air Pods, Macs, and iPads are made in China.” Tim Cook, AAPL’s CEO, once explained that skill sets in China make the Chinese manufacturing a requirement. He explained why Apple cannot manufacture at scale in the U.S. because if every tool and die maker in America were invited to the auditorium where he was speaking, they “wouldn’t fill the room.” In China, “you would need several cities to fill with tool and diemakers.”
On the sales side, Apple generated $74 billion of revenue from China in fiscal 2022, roughly 19% of the company’s total revenue.
Tensions between Washington, DC, and Beijing have caused problems for AAPL. The Chinese government ordered officials at its central government agencies to stop using Apple’s iPhones for work and to stop bringing the devices into offices. While the government ban will only have a limited impact on Apple’s sales, it could be the start of more problems for the company in the world’s second-leading economy.
The uncertainties surrounding AAPL’s future manufacturing and sales in China have caused an over 11% decline from the July all-time high.
Cash is king, and Apple has lots- Higher rates make cash a productive asset
As of AAPL’s latest report, the company was sitting on $62.482 billion in cash and equivalents and short-term investments. While the liquid assets are down from 2019, when they peaked at over $100.5 billion, they remain considerable.
Cash has become a far more productive asset since the Fed increased the short-term Fed Funds Rate from zero to 5.375% in September 2023. In 2020, AAPL earned virtually nothing from its over $90 billion cash and short-term holdings. In 2023, $62.482 billion yields nearly $3.4 billion in interest income.
M&A activity could increase AAPL’s innovations
While rising interest rates provide income for cash-rich companies like AAPL, they create severe constraints for emerging technology companies requiring financing to grow and prosper.
One of the criticisms facing AAPL is the need for more innovation. Aside from a more sophisticated camera, AAPL products have not offered any new and revolutionary technological advances over the past years. The current interest rate environment could cause an increase in merger and acquisition activity in the technology sector. AAPL’s cash hoard makes the company a potential acquirer of tech companies to spur growth and innovation through accretive acquisitions.
I will continue to buy AAPL at higher or lower prices
The recent correction in AAPL shares causing the over 11% decline is nothing new. AAPL has experienced significant declines over the past years.
The five-year chart shows:
- The 35.2% drop from $81.96 in late January 2020 to $53.15 in late March 2020.
- The 25.3% decline from $137.98 to $103.10 in September 2020.
- The 32% move from $182.94 in January 2022 to $124.17 in January 2023.
The situation in China could send AAPL shares lower over the coming weeks and months as previous declines have taken the stock over 30% lower from the high. However, the long-term trend remains very bullish.
The chart dating back nearly four decades shows that buying AAPL shares on any pullback has been a golden strategy.
The significant cash hoard, leadership market cap role, and product franchise are why Apple will remain a valuable company that provides substantial returns for investors over the coming years. I am a scale-down buyer of AAPL shares, leaving plenty of room to add on further declines if another 30+% correction caused by China is on the horizon.
On the date of publication, Andrew Hecht 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.
