The stock market has been in recovery mode this year after a dramatic sell-off in 2022 brought on by macroeconomic headwinds. Easing inflation has rallied investors and led the Nasdaq Composite index to rise 31% since Jan. 1. As a result, it's not a bad time to consider investing in solid growth stocks with a history of consistent gains before they rise higher.
Apple (AAPL -2.41%) is by far my top pick right now, with its potent brand and popular products likely to keep the company growing for decades. The tech giant's stock has soared 48% year to date, making it the first company to surpass a market cap of $3 trillion. However, the company still has a solid long-term outlook, making it a compelling buy to hold over the next decade.
Here's why Apple is my top stock to buy right now.
A stock that won't stop
There's been some criticism surrounding Apple's stock rise this year, with analysts pointing to its price-to-earnings ratio of 33, which indicates it's currently overvalued. The concern is well founded, and the company's shares are on the expensive side. However, its high price point further reflects the stability and low volatility of its stock.
In the first two quarters of 2023, Apple has reported year-over-year revenue declines of 5% and 3% as it recovers from an economically challenging 2022. Yet investors have continued to trust the long-term prospects of the company, keeping its stock trending up. While many companies might suffer significant stock declines after such earnings results, Wall Street sees Apple's short-term hurdles as investment opportunities.
Data by YCharts
The company's consistency is evident in its five-year stock growth. As seen in the chart above, Apple has enjoyed a significantly higher stock increase since 2018 than any other company in the "Big Five" of tech. Apple's focus on delivering high-quality products and services to consumers has granted it immense brand loyalty and allowed its business to continue on a growth path.
Over the long term, the company's leading market shares in multiple areas of its product lineup suggest it will retain its $3 trillion market cap, with the potential to soar far higher.
Slowly diversifying its earnings away from the iPhone
Apple's highest-earnings product by far is the iPhone. The smartphone segment regularly earns over 50% of its revenue, and has become a useful tool to attract consumers to its other offerings. However, with so much of Apple's business riding on the iPhone, it can feel risky to dedicate a large amount of your portfolio to the company. But the tech giant is on a path that is gradually allowing it to lean less on iPhone sales.
In 2019 Apple made a massive push into digital services with the launch of Apple TV+, Arcade, News+, and Fitness+. The company had already entered the industry with its Music platform in 2015, but the further expansion into subscription-based services has led its related segment to become the second-highest-earning part of its business. What's more, services revenue growth came to 14% last year, double the iPhone's growth.
Meanwhile, the digital side of the business provides attractive profit margins, with services hitting 72% in 2022. Comparatively, product profit margins came to 36% in the same period.
Moreover, the recent debut of Apple's first virtual/augmented reality (VR/AR) headset, the Vision Pro, could further diversify its earnings in the long run. The device has debuted at a starting price of $3,499, pricing out many consumers. However, future iterations of the device could see Apple bring down the price and make it more accessible to the masses. If done right, the Vision Pro has the potential to bolster the company's services business as consumers seek entertainment options for the headset and pave a path for Apple to become the leader of the high-growth VR/AR sector.
Apple is dominating consumer tech, which has allowed it to build a lucrative services business. As it continues to diversify its earnings, the company is easily one of the most reliable long-term investments available. Its P/E may be high, but holding its stock for the next five to ten years will likely offer far higher gains.
