As the world's most valuable company with a market cap of $2.6 trillion, it's always a good idea to keep Apple (AAPL -3.64%) on your radar for a potential investment. The company has a long history of delivering significant gains to patient investors. In fact, since Warren Buffett's holdings company Berkshire Hathaway first invested in 2016, Apple's stock has soared 540%.
The company hasn't had it easy this year, with macroeconomic headwinds causing reductions in consumer spending and repeated declines in product sales. As a result, shares in Apple tumbled almost 15% over the last three months.
However, it remains a dominating figure in tech with almost unrivaled brand loyalty from its users. Apple has much to gain from the market's inevitable recovery and is making promising headway in multiple digital sectors, which are less vulnerable to economic challenges.
So, here's why Apple is a screaming buy for long-term-minded investors.
It could be worth buying the dip
It's not often Apple's stock goes on sale, and it's currently trading at one of its lowest positions in the last six months. While the stock dip has been unfortunate for current investors, it has also reduced the cost of entry for new ones.
The company's price-to-earnings ratio currently sits at about 28, also one of its lowest points since May and significantly below the same metric for competitors Amazon and Microsoft. The figure indicates Apple shares offer far more value than both companies, making it a bargain among big tech stocks.
Moreover, despite declines in product sales this year, Apple's financials are solid. The company regularly posts more than $100 billion in annual free cash flow. Meanwhile, in the third quarter of 2023, the company reported $166 billion in cash and marketable securities. The tech giant's balance sheet suggests it has the resources to overcome poor economic conditions and continue investing in its business. As a result, its stock could be an excellent investment to buy now and hold over many years.
Apple is expanding beyond products
Close to 50% of Apple's revenue comes from iPhone sales, which means a significant portion of its business is vulnerable to economic fluctuation. However, the company is working to rectify this by expanding into more digital sectors, decreasing its dependency on product sales over the long term.
In 2019, Apple made a major push into digital services, launching subscription-based products Apple TV+, News+, Fitness+, and Arcade, all within a few months.
The platforms significantly expanded the company's services segment, which already included income from the App Store, iCloud, and Music. The expansion has proved a massive success, with services now Apple's second-highest-earning segment after the iPhone and growing rapidly.
Services revenue rose 8% year over year in Q3 2023, outperforming the iPhone, which declined by 2%. Meanwhile, services offer attractive profit margins, generally at about 70%, while the same metric for products hovers at around 35%.
Digital services are a particularly lucrative area for Apple and are on a trajectory to eventually surpass its iPhone segment, fortifying its business against macro factors over the long term.
Additionally, Apple is gradually moving into artificial intelligence (AI), a market projected to expand at a compound annual growth rate of 37% through 2030.
CEO Tim Cook told Reuters in August that the company's over $3 billion increase in research and development spending in Q3 2023 was mainly focused on generative AI. Apple's research has seen it gradually bring AI upgrades across its product lineup this year, improving user experience.
Apple's long-term plan remains to be seen, but there will likely be countless opportunities to monetize its AI offerings in the coming years. Meanwhile, its dominance in tech, loyalty from consumers, and history of success when entering new segments could see it become a major player in the industry over the long term.
Alongside strong financials and a recent dip in its share price, Apple's stock is too good to pass up right now.
