Apple’s (NYSE: AAPL) market cap surpassed $3 trillion on the first trading day of 2022. It has since crashed and is down 25% in the year, but is still the best performing FAANG stock in 2022. In the first quarter of 2022, Warren Buffett bought the dip in Apple stock and invested $600 million into the iPhone maker. Should you also buy the dip in AAPL stock?
While growth stocks have looked weak in 2022 amid the Federal Reserve’s rate hikes, mature and profitable companies like Apple and Alphabet have been relative outperformers. Investors have pivoted towards large tech companies in 2022, and the trend is expected to continue in the medium term. Investors have also shunned Netflix, which is the worst-performing FAANG this year, as well as Meta Platforms. Meta Platforms stock looks attractive though after losing over 13% in June.
Warren Buffett loves AAPL stock
While Buffett has largely stayed away from tech stocks, Apple is Berkshire Hathaway’s largest holding. The conglomerate is sitting on billions of dollars of unrealized gains on AAPL stock. Buffett sees Apple as a consumer product company and has appreciated its products as well as its leadership.
Your capital is at risk.
Apple does face several risks in the short to medium term. These include a possible recession in the U.S. which could dampen the demand for discretionary consumer products like smartphones and laptops. The company is also at a risk from the continued supply chain issues due to the lockdowns in China.
Also, in general, sales growth of smartphones has come down after the pandemic boost. The slowdown is arguably much less severe for Apple as compared to pure-play stay-at-home companies like Zoom Video Communications and Peloton.
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Four reasons to buy the dip in Apple stock
Apple is among the most iconic U.S. businesses with a strong global brand and pricing power. There are four reasons why you should buy the dip in Apple stock.
Firstly, AAPLs valuation multiples have corrected amid the crash and it now trades at an NTM (next-12 months) PE multiple of 21.4x. While the valuations are higher than the company’s historical multiples, it’s because Apple is now seen as a software company and not merely a hardware company. Software companies command a higher valuation as compared to hardware companies.
Secondly, Apple’s balance sheet looks quite strong and the company is using the cash to repurchase the shares. The stock repurchases would help buoy the company’s EPS.
Third, AAPL is trying to increase its target market. It sees financial services as a key long-term driver and has entered the BNPL (buy-now-pay-later) market. Given its strong finances, Apple is expected to disrupt the BNPL industry. No wonder, Affirm, which is a pure-play BNPL company, slumped after AAPL announced a foray into the industry.
Finally, by the middle of this decade, Apple is expected to enter the electric car market. It is rumored to be working on an internal project named “Titan” for electric and autonomous cars. Many analysts, including hard-core Tesla bulls, believe that AAPL would be a formidable competitor to Tesla.
Given the current macroeconomic environment, investors should stick with companies with a healthy balance sheet, profitable businesses, pricing power, and strong moat. Apple ticks all the boxes and the recent dip in Apple stock looks a once in a lifetime opportunity to buy the stock at a discount.
Your capital is at risk.
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