2023 has been generous so far to investors. Both the Nasdaq Composite and S&P 500 have been buoyant, returning 34% and 18% respectively. While the tech sector has enjoyed outsize returns so far this year, one Warren Buffett stock sticks out among the rest. Apple (AAPL -0.82%) stock is up 47% so far this year with its market capitalization recently eclipsing $3 trillion.
While that's all very impressive, investors should zoom out and take a look at the broader economic picture. Even though inflation is beginning to cool, consumers still face higher rates when compared to historical averages. Moreover, the Federal Reserve is continuing to raise interest rates, which has impacted consumer spending habits, especially in discretionary end markets.
Apple's latest financial results may appear mixed on the surface. But as I often encourage readers to do, taking a long-term approach to your investment horizon may paint a different picture. Let's dig into the report and analyze the company's current state of affairs.
Apple has mountains of cash
For the quarter ended July 1, Apple reported total revenue of $81.8 billion, a nominal decline of 1% from the prior-year period. Looking at the results more deeply, investors can see that sales decreased in each of the company's reportable geographic regions except for Europe and Greater China.
Given that the European economy in particular has been stagnant for several months, it is encouraging to see that Apple, which primarily sells luxury hardware devices, is seeing revenue accelerate in that region. Moreover, Apple CEO Tim Cook shared that Greater China's positive momentum was fueled by high iPhone demand. Cook said that Apple set a new June quarter record for what it calls "switchers," or people who previously used non-iPhone mobile devices, and witnessed a lot of this trend in the Greater China region.
Despite lower revenue across iPhone, iPad, and Mac devices, Apple still managed to turn a healthy profit, reporting a 2% year-over-year increase in net income to $19.9 billion. To really understand how strong Apple's financial position is, investors should take a look at the company's balance sheet. Despite a drop in revenue and only a 2% increase in profits, Apple still boasted $166 billion of cash and marketable securities on its balance sheet at the end of the quarter.
What does the road ahead look like?
While the June quarter results were a bit of a mixed bag, Apple's management made sure to tame investor expectations for its near-term outlook. For the September quarter, the company expects Mac and iPad revenue to decline by double-digits year over year. However, this trend is not entirely attributable to current consumer spending sentiment.
Last year the company battled supply chain disruptions and factory shutdowns during the June quarter but was able to make up for the backlog during the subsequent months. Therefore, last year's September-quarter numbers were likely a bit inflated. On a positive note, management expects iPhone and services revenue to accelerate next quarter.
The big winner of the quarter was services, which grew 8% year over year to $21.2 billion. This was an all-time record driven by categories such as video, cloud, and payment services. Management's outlook of continued acceleration in services is a real testament to the sticky, engaged ecosystem Apple has created.
All things considered, I'll take this outlook as a win. The anticipated declines in iPad and Mac sales do not appear to be attributable to consumer demand or spending habits. Moreover, the iPhone results discussed above reflect how strong the demand is across the globe.
Should you buy the stock?
Apple stock is down roughly 5% since the company reported earnings. One of my favorite tech research analysts, Dan Ives of Wedbush Securities, increased his price target on Apple stock to $230 per share, implying 26% upside from current trading levels.
Now, I understand that the some investors yearn for the days of high-double-digit revenue growth fueled by product innovation. Additionally, one Wall Street bull's opinion is not reason enough to buy the stock. By looking at Apple's entire business, investors may come to see that the company is actually a pretty interesting case study.
One reason why Buffett loves Apple stock is its rich history of shareholder value creation over a long-term time horizon. In the most recent quarter alone, Apple returned over $24 billion to shareholders in the form of dividends and share repurchases.
Even during a quarter of slowing revenue and mundane profit growth, the company still manages to set records in different areas of its business. Perhaps most importantly, Apple is seeing strong demand in its flagship iPhone product and expects continued momentum from services. Furthermore, the company's healthy financial position alone makes it so hard to bet against in any economic climate.
To me, this is a really unique opportunity to buy the dip and take advantage of the sell-off. If history is any indicator, Apple could reach its next trillion-dollar milestone in the blink of an eye.
