facebookWhy Even Android Users Should Consider Adding Apple Stock To Their Portfolios

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Why Even Android Users Should Consider Adding Apple Stock To Their Portfolios

Why Even Android Users Should Consider Adding Apple Stock To Their Portfolios

profileJustin Oh

Before we start, let me say that I currently do not own a single Apple product and am a proud team Android person.

As a tech geek who prefers not to be tied down to one brand, Apple’s walled-garden ecosystem goes against my motto of “may the best device win, regardless of brand”.

I’ve even ditched my company’s MacBook and requested for a new Windows laptop as I simply couldn’t get used to one…

So I’m as far away from an Apple fanboy as you can get.

Putting my personal lifestyle choices aside, my investor self knows that Apple Inc (NASDAQ: AAPL) is a beast of a tech stock to deal with and could play a vital role in your portfolio.

Or as your first stock as you start DIY investing in the U.S. market.

Source: Apple

But with the largest market capitalisation in the world, many of us might be wondering…

How much further can Apple (and its share price) grow?

Read on to learn about Apple’s business, its future, and the role it can play in your portfolio.


TL;DR: Why You Should Consider Apple Stock In Your Portfolio

Bull case for Apple:

  • Apple is still one of the top two smartphone manufacturers in the world
  • Strong economic moat/advantage with its integrated ecosystem
  • Insulated from rising interest rates
  • Share buybacks put upwards pressure on share price
  • Potential for more growth in the budget smartphone market, Apple services and Metaverse

Risks of investing in Apple:

  • Heavily reliant on iPhone sales for revenue (57% in Q1 ’22)
  • Regulation risks

Disclaimer: The information provided by Seedly serves as an educational piece and is not intended to be personalised investment advice. ​Readers should always do their own due diligence and consider their financial goals before investing in any stock. The writer may have a vested interest in the companies mentioned.


Why Should I Invest in Apple Inc (NASDAQ: AAPL)?

Basic Statistics

To start things off, here are some basic statistics you should know about Apple stock.

 Apple
Year Founded1977
Date Listed12 December 1980
IPO PriceUS$22
Current Share Price
(as of 7 April 2022 close)
US$172.14
Current Market Capitalisation
(as of 7 April 2022 close)
US$2.809 trillion
Current Price-to-Earnings (P/E) Ratio
(as of 7 April 2022 close)
28.62

Apple has split its stock five times since the company went public, with the latest being on a 4-for-1 basis at the end of August 2020, making its share price really accessible when compared to the likes of Tesla (NASDAQ: TSLA), Google (NASDAQ: GOOGL) and Microsoft (NASDAQ: MSFT).

How Does Apple Make Money?

Apple is most well-known for the Apple iPhone, accounting for about 57% of its revenue in the first quarter of the fiscal year 2022 (FY2022).

Aside from that, Apple also produces a slew of other products and services, including the Mac, iPad, Apple TV, iCloud and more.

Business SegmentsLines of BusinessDescription
ProductsiPhoneLine of smartphones based on Apple's iOS operating system
MacLine of personal computers based on Apple's macOS operating system
iPadLine of Apple's multi-purpose tablets
Wearables, Home and AccessoriesIncludes AirPods, Apple TV, Apple Watch, Beats products, HomePod, iPod touch, and other Apple-branded and third-party accessories
ServicesDigital Content Stores and Streaming ServicesIncludes platforms such as the App Store and streaming services like Apple Music
AppleCareFee-based services to extend the coverage of phone support and hardware repairs
iCloudApple's cloud service
LicensingWhere Apple licenses the use of certain of its intellectual property
Other ServicesIncludes services such as Apple Arcade, Apple Card, Apple News, and Apple Pay

Apple’s Advantage/Economic Moat

So what’s so great about Apple if there are other companies that do the same?

Well, Apple’s big advantage is in its ecosystem of products and services.

Source: YouTube | Apple Explained

The Apple ecosystem is highly praised for its seamless integration and optimisation between devices, software and services.

In other words, Apple places a huge emphasis on its user experience, making its products really simple to use.

As the iPhone is the main driver of Apple’s success, let’s talk a bit about how the iPhone has built a cult-like following for Apple and retains its resale value better than any other phone.

 

 

The iPhone 13
Source: Apple

With an iPhone in hand, you’ll be holding a phone that boasts quality and well-optimised applications, no bloatware and enhanced privacy controls compared to Android phones.

Moreover, the iPhone has the entire package with better retail support, a larger selection of accessories and tons of other Apple products that you can seamlessly connect with to complement your mobile companion.

If you’re invested in the Apple ecosystem, you can do things like unlock your Mac with your iPhone or easily switch devices while having all your files easily accessible at the touch of a button.

But of course, the whole “iPhone vs Android, Apple ecosystem vs the rest” debate deserves a whole other article on its own, so we’ll let the numbers do the talking.

Apple iPhone Market Share

Source: Counterpoint Research

Apple has consistently been in the top two smartphone makers along with Samsung.

In Q4 2021, Apple topped the global smartphone market with 80.1 million shipments.

Clearly, Apple still reigns as one of the top premium smartphone manufacturers globally.

Then again, Apple isn’t just about smartphones. So let’s take a look at the company as a whole.

Apple’s Financials

 FY2017FY2018FY2019FY2020FY2021
Revenue
(US$' million)
229,234265,595260,174274,515365,817
Net profit
(US$' million)
48,35159,53155,25657,41194,680
Net profit margin21%22%21%21%26%
Free cash flow
(US$' million)
51,77464,12158,89673,36592.953

Apple continues to have a strong balance sheet, with revenue increasing over the past five years.

Its net profit margin is also way ahead at 26% in FY2021, compared to the S&P500 at around 13%.

This means that Apple is almost twice as profitable as most companies in the S&P 500 since Apple makes most of its products in-house.

Moreover, its free cash flow has reached US$92 billion, so it has more than enough to reinvest in itself and innovate new products or improve existing ones.

 Q1 '21Q1 '22
Revenue
(US$' million)
111,439123,945
Net profit
(US$' million)
28,75534,630
Net profit margin26%28%

Despite the supply chain woes and the wake of rising interest rates, Apple has continued to perform in the first quarter of 2022, with revenue increasing 11% and net profit increasing 20% over the prior year.

The stock has also continued to perform while other tech stocks have struggled.

As a plus point, Apple does regular share buybacks that reduce the total amount of outstanding stock.

Assuming ceteris paribus, this will drive up the share price as supply drops.

Apple’s Future

iPhone Sales

With smartphone sales still being its main driver, Apple needs to remain competitive amidst the plateauing of smartphone technology.

In this aspect, it is really hard to say which company will dominate the premium smartphone market in the future.

BUT

A recent study by Consumer Intelligence Research Partners (CIRP) reports that 90% of iPhone buyers still plan to stick with Apple.

This is likely due to the walled-garden ecosystem that makes it hard for users to switch to Android and the luxury appeal that the iPhone has.

In addition, with the rollout of 5G, Apple is in the midst of an iPhone upgrade cycle, which could see many existing iPhone users buying a new iPhone with 5G capabilities.

The iPhone SE
Source: Apple

Moreover, Apple still has a lot of room to grow in the budget category for smartphones, especially in markets like India and China.

Apple hopes to enter this market with the latest 5G-enabled iPhone SE.

On the flip side, it faces stiff competition from Chinese brands and government regulations.

Growing Service Business

The service business of Apple continues to grow with an all-time high of US$19.5 billion in revenue for Q1 ’22.

This is a 24% increase compared to Q1 ’21 and is a bullish signal that Apple’s services are becoming more widespread and poised for long-term growth.

AR, VR Headsets and the Metaverse

With more than 14,000 applications already on the App Store that bring Augmented Reality (AR) experiences to Apple users, Apple could just be the next major player in the Metaverse.

Broadly speaking, the metaverse is a collection of virtual worlds that focuses on social interaction.

Source: Blomberg

According to third-party reports, Apple is developing a headset to tap into the metaverse space.

Assuming things go well and with the support of the Apple ecosystem, the company could potentially take a huge share of the pie in the Metaverse market, which is expected to generate nearly $829 billion in revenue by 2028.

Apple Stock Risks

Of course, not everything is a bed of roses for even a huge company like Apple.

With such a huge reliance on iPhone sales, detractors will argue that Apple is over-reliant on the iPhone and may lose its draw into the Apple ecosystem.

Another concern for investors is that Apple’s balancing act is getting trickier as the Chinese government cracks down on U.S. firms over security concerns.

There is a constant risk that China may just ban Apple entirely, which will take a significant chunk of its revenue away.

The Role of Apple Stock in Your Portfolio

With all that said, here’s how Apple stock could play a role in your investment portfolio.

For seasoned investors, Apple stock could be a great addition as it can serve to diversify, reduce risk and form the backbone of a growth-focused portfolio.

Newbie investors could consider Apple as their first stock pick in the U.S. market as it is seen as a safer stock.

Even Warren Buffet’s Berkshire Hathaway owns Apple stock, accounting for 44% of its entire portfolio.

Be that as it may, always do your own research before buying any stock and remember that past performance is not an accurate indication of future results.

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About Justin Oh
Your average Zillennial who is obsessed with anime, games, movies and of course, personal finance. Join me as I break down personal finance into easily digestible and fun bits!
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