If you have a certain amount of money set aside and are waiting for the right moment to attack one of the mega-tech stocks, which one should be at the top of your shopping list?
Of the top three in the world of tech companies - Apple (NASDAQ:AAPL), Amazon (NASDAQ:AMZN) and Microsoft (NASDAQ:MSFT) - our favorite is Apple. The iPhone maker's shares are down more than 15% from its January high as investors, fearing higher interest rates, sell high-yield stocks.Apple Weekly Chart.
How long will this sale last? One can speculate, but there are strong arguments that Apple stock will rebound after this correction. Here are three main reasons why we are bullish.
1. Individual investor interest
One of the main indicators that tells us about the resilience of this bull market is the share of retail investors in investing in equities. One year after the stock market crash caused by COVID-19, individual investors now account for nearly a quarter of US equity trading volume.
Since the market peaked a few weeks ago, retail investors have invested in US equities at a rate 40% higher than in 2020, which was also a record, according to a Bloomberg report. Among such investors, according to the report, Apple was the most popular in the past week.
With the U.S. government soon to send checks to citizens from its latest $1.9 trillion stimulus package, more money will be going into equity investments. And for retail investors, Apple remains one of the top targets because the brand is well known to them.
2. Solid ROE
For long-term investors who aim to earn a decent return through dividends and capital appreciation, Apple stock is an excellent choice.
With $196 billion in bankroll, Apple is in an enviable position to further ramp up its share buyback program to support its stock. With a share buyback, the value of your Apple shares will increase as fewer shares are outstanding and profits are shared among fewer shareholders.
Warren Buffett, whose investment firm is one of Apple's largest shareholders, has benefited greatly from this trend. Buffett has raised $120 billion in Apple shares since his Berkshire Hathaway (NYSE:BRKa) began buying shares in late 2016.
Berkshire accelerated Apple's purchases in 2018 and has since been reducing its holdings, which will allow Berkshire to earn $11 billion in sales in 2020. Despite these sales, Berkshire's share of the iPhone maker only increased because Apple also expanded own buy-backs, which reduced the number of shares outstanding.
As Buffett told investors in his 2020 letter last month:
"Despite this sale - voilà! - Berkshire now owns 5.4% of Apple." This growth has been cost-free to us as Apple is constantly buying back its stock."
3. New Super Growth Cycle
After experiencing a slow growth period for its flagship iPhones, Apple is headed for another super growth cycle fueled by newer 5G-enabled phones.
The arrival of the iPhone 12, we believe, will trigger a record sales boom similar to that of 2014 when the first large-screen iPhone was introduced, as millions of existing users are likely to upgrade aging phones.
The latest iPhone has the ability to access the next-generation cellular network, called 5G, which promises faster internet speeds. In the last quarter, the new iPhone helped sales increase by 57% in China, which has a more developed 5G network.
Apple isn't just about iPhones, though. Apple's services, which include the App Store, iTunes, Apple Music and iCloud, are seeing strong growth, helping to diversify the company's revenue away from gadgets.
Last year, revenue from this division jumped to $54 billion, more than double the 2016 figure. If the pace of this growth continues, revenue from the services business could exceed $100 billion by 2024, according to Evercore ISI analyst Amit Daryanani.
Buying Apple stock during this bearish streak is a good strategy, especially for those investors who want to hold the stock for longer. Apple's solid stock buyback plan, iPhone sales growth, and growth in its services business are all factors that will help the stock rebound quickly after the end of the bear market.
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