The market's prolonged downturn may have you feeling anxious. After all, the S&P 500 has fallen by more than 8% since the start of 2022. But the news isn't all bad. This year, the index has increased by about 7%.
While no one can predict the future with certainty, the market's rise could prove an encouraging sign. And you'll want to put yourself in a good position to profit from the next bull market. Apple (AAPL 0.05%) has become a compelling opportunity for a couple of very good reasons.
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Popular products
Apple's products continue to resonate with consumers. Some of the most popular include the iPhone, Mac, and Apple Watch. Apple also offers popular services such as the App Store and Apple Pay.
The iPhone, which accounts for over half of Apple's sales, keeps gaining popularity. Last year, its market share grew to over 50% of U.S. smartphones in use, overtaking Android phones.
In the first fiscal quarter, which ended on Dec. 31, 2022, iPhone sales fell by 8% to $65.8 billion. But I'm not concerned with the drop, given that Apple continues to win over consumers. Management claimed last year's results were boosted by the new model release. Since Apple puts out new versions periodically, higher sales will occur during these times.
Its ever-growing service business continues to gain traction. Sales were up by 6% to $20.8 billion during the quarter. This business fluctuates less than products and has a higher margin. For instance, services' first-quarter 70.8% gross margin was nearly double products' 37%.
Sharing the wealth
Apple has also generously returned cash to shareholders via dividends and share repurchases. Last year's free cash flow was $111.4 billion. This covered the period that ended on Sept. 24, 2022. The company paid most of this, $104.2 billion, to shareholders via dividends.
Repurchase activity was the bulk, representing about 85% of last year's cash return to shareholders. And it's been a good use of capital, with management paying an average price of about $159, below the current stock price.
Apple's board of directors has raised dividends annually for more than a decade.
Admittedly, Apple stock, with a price-to-earnings (P/E) ratio of 28, isn't as cheap as it was earlier this year when the multiple was in the low 20s. But that's no reason to fret. After all, that's much lower than the valuation at the end of 2021, when the P/E was over 40.
The company's stock price will likely propel ahead during the next bull market, even if the stock's not ultra-cheap. That's because its strong brands garnering customer loyalty creates a good recipe for success. No wonder Berkshire Hathaway has built such a large stake.
Remember: Just copying anyone's investments, even the wildly successful Warren Buffett's, isn't wise. However, in this case, Apple's business prospects and capital return program create a compelling opportunity for investors.
