Apple (AAPL 1.79%) is the household name to end all household names. The iPhone maker has been around for decades, growing into the most valuable stock on the market with a market cap of $2.1 trillion. That's a 13-digit number, folks.
Not every investor owns Apple shares, though it's safe to say that most of us have at least considered picking up a share or two of the Cupertino giant. But if everyone agreed in unison on Apple's long-term business prospects and financial health, the stock would never move and you'd never gain or lose any money by holding it. That's not how investing works.
So let's take a look at the pros and cons of buying Apple stock in the current market. Investment decisions should be made with a clear head and a rich understanding of the stock you're buying. Whether you walk away from this analysis with an urge to hit that buy button, or you end up wanting nothing to do with this particular stock, I've done my job as long as you gained a deeper understanding of this massive company.
The bull case for Apple
Now, I know you might be wondering, "Why would I want to invest in a tech company in 2022? That sounds risky!" But hear me out, because there are several reasons Apple might be a good investment.
First of all, it's a financially strong company. It has a long track record of profitability and consistently generates high revenue and profits. It also has a strong balance sheet, with $156.4 billion of global cash reserves and a lower debt balance of $111.8 billion. This means that it has the resources and financial stability to weather any storms that might come its way over the next few years.
Another reason to consider Apple is its diversified product line. The company offers a wide range of products, including popular items like the iPhone, iPad, Mac, Apple Watch, and AirPods. This diversification helps to reduce the risk associated with investing in Apple. If one product doesn't do well, the company has others to fall back on.
In addition to its financials and its product line, Apple also has a strong brand reputation. People around the world know and trust its brand, which helps to drive customer loyalty and attract new customers.
So, to sum up, Apple is a financially strong company with a diversified product line and a solid brand reputation, as well as a creative reputation. These are all factors that make it a potentially attractive investment option. Furthermore, the stock isn't terribly expensive right now, trading at 21.6 times trailing earnings and 19.3 times free cash flow.
The bear case against Apple
Now you might be thinking, "Apple is a big and successful company, so it must be a safe investment, right?" Well...not exactly. Even this business titan comes with some challenges and risks to be aware of.
One risk to consider is Apple's dependence on the iPhone. A whopping 52% of the company's revenue in its fiscal year 2022 came from selling iPhone products. The smartphone's business value becomes even more significant when you consider the ecosystem of accessories, services, and apps that revolves around the phone. As a result, if the demand for iPhones decreases or the company runs into production issues, it could negatively impact Apple's financial performance.
Another risk is intense competition in the tech industry. Apple's rivals include other tech giants and start-ups, particularly in the smartphone market. This competition could lead to pricing pressure and margin erosion, negatively affecting the bottom line.
Apple also relies on key suppliers to manufacture its products. If there are issues with those suppliers, that could impact the company's ability to produce and sell its products. For example, a COVID-19 outbreak in Zhengzhou, China, limited the production of the iPhone 14 Pro and 14 Pro Max this fall.
So, while Apple might seem like a safe and stable investment at first glance, there are actually some concerns to be aware of. Many of them apply to the entire stock market, or at least to the consumer electronics market as a whole. However, a few key issues, such as the heavy reliance on iPhone sales, are unique to Apple.
Those are the pros and cons of owning Apple stock. As with any investment, it's important to thoroughly research and carefully consider the potential risks and rewards before making a decision. And as always, don't forget to diversify your portfolio to spread risk, and not rely too heavily on any one investment -- not even mighty Apple.
