Investors have been inundated with headlines about the COVID-19 coronavirus, leading some to react as if the sky were falling. The Dow Jones Industrial Average, the S&P 500, and the NASDAQ Composite all officially entered correction territory last week, each down more than 10% from recent highs, as concerns about the spread of the disease continue to dominate the world stage.
Famed investor Warren Buffett has counseled investors to "Be fearful when others are greedy. Be greedy when others are fearful." With that in mind, let's look at one stock that is still a worthwhile investment and has plenty going for it, even as fear grips the market and the Wall Street slump continues -- technology giant Apple (AAPL 0.54%).
Image source: Apple.
1. Reports of iPhone's death have been greatly exaggerated
There's little doubt that smartphone sales are slowing, which will put a dent in the iPhone's future growth prospects. Worldwide smartphone shipments fell by more than 4% in 2018, but appeared to turn the corner in 2019, producing annual growth of 1% according to market intelligence company Canalys.
At the same time, Apple chipped away at its rivals, with its market share growing to 21.3% in the 2019 fourth quarter, up from 19.7% in the prior-year quarter, according to the report.
That was also reflected in Apple's quarterly earnings, as the company reported its highest quarterly revenue ever. Sales of the iPhone grew 7.6% year over year to $56 billion, on strong demand for the iPhone 11 and iPhone 11 Pro, showing the reports of its demise are clearly overstated.
2. "Wear" is the growth coming from?
Even as sales of the iconic iPhone have slowed, other devices are rushing to take up the slack. Apple's wearables, home, and accessories segment has become an important growth driver, growing 37% year over year, and topping $10 billion, accounting for nearly 11% of the company's total revenue. The wearables sub-segment grew even faster, up 44%, setting an all-time record for the quarter.
One standout performer was the Apple Watch, which also set an all-time revenue record during the quarter. Even more startling, the Apple Watch sold an estimated 31 million units last year, outselling every Swiss watch maker -- combined.
It's not just the Apple Watch that's making waves. Apple's AirPods have been a perennial favorite and the latest edition -- AirPods Pro -- captured the imagination of even more fans, featuring active noise cancellation. Both versions became "must-haves" and were at the top of consumers' wish lists over the holidays.
Image source: Apple.
3. Services
Apple CEO Tim Cook had famously predicted the company would double its 2016 services revenue by the end of 2020, a goal the company will likely achieve ahead of schedule. CFO Luci Maestri pointed out on the Q1 conference call that the company had already reached the benchmark on a run-rate basis.
Services revenue topped $12.7 billion during the quarter, an all-time record, increasing 17% year over year, and accounting for nearly 14% of Apple's total revenue. Many of the company's individual services also achieved records, including cloud services, music, payment services, App Store, and Apple Care.
That may be just the beginning. Late last year, Apple introduced a number of new high-profile services, including Apple Card, Apple News+, Apple Arcade, and Apple TV+, which are just getting started. With an installed base of more than 1.5 billion active devices in the field, there's a massive captive audience for Apple's services, which will continue to grow from here.
4. Shareholder-friendly practices
Apple resumed paying a dividend in early 2012 after a nearly 17-year hiatus, but since then the company has become a dividend-paying dynamo. Apple raised its dividend every year since, more than doubling the payout in just seven short years. The dividend currently yields 1.13%, and while that may not turn heads, it's important to remember that this was affected by the stock's massive 86% gain last year, making the dividend appear somewhat paltry.
The company has also been buying back shares by the boatload. Since it began its stock buyback in early 2012, Apple has retired nearly 30% of its shares.
There could be more to come, as Apple has historically updated investors about its capital return policy in conjunction with its quarterly earnings report in April. Given that the company has hiked its dividend in each of the past seven years, it isn't a stretch to expect another increase next month.
AAPL Dividend data by YCharts
5. A moderate valuation
For all its future growth prospects, it would be reasonable to assume Apple stock would fetch a premium valuation, but that's simply not the case. After its impressive gains in 2019, Apple stock isn't the screaming buy it was this time last year, but it still boasts a moderate valuation, with a price-to-earnings ratio of 23, similar to that of the S&P 500.
This gives investors the opportunity to buy into one of the world's foremost technology stocks, which is well-positioned to generate market-beating gains, at a relative bargain.
6. Buffett owns a massive stake
Berkshire Hathaway (BRK.A -0.46%) (BRK.B -0.47%) CEO Warren Buffett began accumulating Apple shares in early 2016, a position started by either Todd Combs or Ted Weschler, his most trusted investment managers. The purchase piqued Buffett's interest, and after researching the investment himself, the famed investor bought a massive stake, spending an estimated $36 billion on Apple shares.
Even though the company has since reduced its holdings in Apple, its remaining stake still amounts to 245.2 million shares, worth more than $71 billion at current prices, and accounts for about 14% of Berkshire's market cap.
Buffett has cited Apple's leadership, its customer loyalty, and the stickiness of its ecosystem as reasons for his size of his stake. He went even further, saying, "I'd love to own 100% of it." That's high praise, coming from one of the world's most esteemed investors.
A word of caution
It's important to note that with the ongoing outbreak of coronavirus, Apple shares initially took a beating, before regaining some of their losses. With the bulk of its manufacturing and its second-largest consumer market in China -- the country currently hardest hit by the health crisis -- there will no doubt be a short-term disruption to Apple's business and its stock price will continue to be volatile until the outbreak has run its course.
That said, with all the things working in its favor, investors should ignore the headlines and buy Apple stock.
