A stock market sell-off over the last 12 months has affected numerous companies across different industries, with tech companies some of the hardest hit. In fact, declines in demand for consumer tech have led the Nasdaq-100 Technology Sector index to plunge 40% year to date. As a result, it has become crucial to invest in growth stocks that can provide gains over the long term to mitigate potential economic declines. And a great option is Apple (AAPL 0.01%).
The iPhone company has not been unscathed by the market downturn. However, its more moderate fall of 28% since January and continued revenue growth has proven its reliability. Additionally, its 207% rise over the last five years, despite a challenging year, has solidified it as one of the best growth stocks out there.
Here's why Apple shares are a screaming buy after this dip.
Overcoming market declines
Apple's stock has stumbled in the last year, but the company has continued to perform better than many of its competitors. For instance, in the third quarter of 2022, IDC Tracker found worldwide PC shipments declined by 15%. Among its list of top companies in the industry, Apple was the only one to report growth at 40.2%, while its competitors declined between 7.8% and 27.8%.
The smartphone market similarly saw shipments fall 9.7% in Q3, with Apple's 1.6% growth the only improvement among its competitors.
Consistent demand for Apple products can also be seen in the company's segment revenue. In its latest reported quarter, iPhone revenue climbed 9.6% year over year to $42.6 billion, largely thanks to the success of its iPhone 14 lineup, which launched in September. Meanwhile, Apple's Mac segment enjoyed a revenue rise of 25.3% to $11.5 billion.
The tech star also generated $111.4 billion in trailing free cash flow as of Sept. 30, considerably more than its peers. Over the same four-quarter period, Amazon reported a negative $26.3 billion in free cash flow. Alphabet generated $62.5 billion of free cash, Microsoft's cash profit hit $63.3 billion, and Walt Disney's was $1.07 billion.
Apple may have some challenges ahead, but strong and consistent demand for its products in a year plagued by market declines proves it's home to a robust business worth an investment.
A long-term win
All eyes have been on Apple's stock over the last month, with shares dipping almost 10% amid growing concerns over its dependence on China for iPhone production. The smartphones made up 52% of Apple's total revenue in its fiscal 2022, and recent production strains in China after a spike in COVID-19 cases have concerned investors.
On Oct. 31, Reuters reported that Foxconn -- also known as Hon Hai Technology Group, which manufactures about 70% of all iPhones -- could see a 30% decline in iPhone production because of lockdowns. Despite Foxconn's plan to coordinate backup production with other plants, Apple has begun making moves to relocate its manufacturing needs as soon as possible.
The company is already producing a portion of its iPhone 14s in India, with J.P. Morgan analysts estimating that Apple will move about 25% of all of its products by 2025.
Apple's complete move out of China will likely be lengthy. However, it's positive that the company is being proactive in rectifying the situation, and it certainly has the cash to make the transition as smooth as possible.
Furthermore, Apple is making significant inroads in services, with the segment earning the second-biggest portion of revenue in its fiscal 2022. Services saw revenue rise 14% year over year to $78.1 billion. Meanwhile, iPhone revenue increased by 7% in the same period.
NASDAQ: AAPL
Key Data Points
Strong growth in services is especially promising because of its attractive profit margins. In 2022, services reported a 71.7% profit margin, while the same metric for products came in at 36.3%. As a result, Apple's services business has the potential to ease pressure from its iPhone segment as the company restructures its production line.
Moreover, numerous reports have revealed Apple may be taking its first steps into augmented reality (AR) and virtual reality (VR) in 2023 with the release of a new headset. With its quick rise to dominance in markets such as tablets, smartphones, Bluetooth headphones, and smartwatches, the company has proven a knack for successfully entering new industries. Entering the $25.33 billion AR market, expected to see a compound annual growth rate of 40.9% until 2030, could be incredibly lucrative for Apple's long-term future.
Apple's stock may have tumbled in 2022, but its position as an excellent growth stock remains. As a result, the company would be an asset to any portfolio and will likely provide significant gains for those willing to hold for the long haul.
