The Nasdaq Composite, a tech-heavy index, has gotten beaten up in 2022. With the steep drop in tech stock interest and the struggles that many stocks in the index have had, the Nasdaq is down more than 29% year to date.
Apple (AAPL 0.52%) is the largest component of the Nasdaq Composite, making up almost 13% of the index as of Sept. 30. Considering Apple is down only 12% year to date, it is helping to prop up the index. This stock price resiliency is due to Apple's operational resiliency. While other big tech companies are crashing and burning after reporting earnings, Apple continues to chug along and post stable results.
Apple seems to be weathering the storm of an uncertain global economy right now, but let's find out why that could continue and why you might want to buy shares of this stock if you're looking to take advantage of the Nasdaq bear market.
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Steady execution, no matter the climate
Since Apple was founded almost five decades ago, the company has developed one of the strongest brand names ever in the consumer-facing tech space. The company sells hundreds of billions of dollars worth of iPhones, Macs, iPads, and wearable devices every year worldwide, illustrating its unrivaled scale. This has helped Apple control over 55% of the U.S. smartphone industry as of September, according to Oberlo.
Apple's brand strength has stemmed from its high-quality products. As of its fiscal fourth quarter, which ended Sept. 24, iPhone customer satisfaction in the U.S. was 98%. Therefore, it will be incredibly difficult for a rival to penetrate the company's dominant position, considering its products are loved by consumers.
These powerful competitive advantages have helped the company see robust results despite the uncertain global economic environment. In Q4, Apple posted total sales of $90.1 billion, which was up 8% year over year. Considering consumers generally spend less on discretionary goods like new phones during economic turmoil, this is a testament to the near-impenetrable moat that Apple has built.
Another reason Apple's results have continued to stay healthy is its revenue diversification. Not only does Apple generate revenue from its iPhones and Macs, but it has gradually expanded into other business segments like wearable devices, as well as services and subscriptions. Apple's services business includes subscriptions to products like Apple TV and Apple Music, as well as advertising and payment services. Therefore, when one business segment struggles, another is often there to pick up the slack.
This was abundantly clear in Q4 when Apple's iPad sales slumped 13% year over year to $7.2 billion, but Mac sales soared 25% to $11.5 billion over the same period.
The best cash generator on the market?
The company has impressive competitive advantages that have helped it remain fairly resilient, but nothing can be more valuable during a bear market than cash flows. Luckily for Apple, it has built a business that practically prints money. During the last fiscal year, Apple generated more than $122 billion in cash from operations, which is unrivaled by any other big tech company.
In an uneasy macro environment, cash is king. Not only does it allow businesses to avoid financing with debt during a precarious time, but with enough cash, companies can continue investing heavily into their core business while rivals are forced to pull back spending. Given Apple's impressive cash generation (with just $11 billion in short-term debt on the balance sheet), it is positioned nicely to continue investing and thrive over the long haul.
This stable stock could be for you
Apple's fourth quarter proved why the company is handily outperforming the Nasdaq this year. While other companies are seeing demand stagnate and cash flows fall, Apple is leaning on its competitive advantages to continue thriving. Chances are high that the company will come out more powerful than ever from this downdraft in the economy.
Considering Apple is one of the biggest companies in the world with a market capitalization of $2.5 trillion, it might not be the best investment if you're looking for the next big winner. If you're looking to buy a healthy company to build your portfolio around, however, Apple looks like a great place to park cash today.
