Over the past year, Apple (AAPL -0.09%) and Amgen (AMGN 0.92%), two well-established companies that are part of the iconic Dow Jones Industrial Average, have faced significant headwinds. Apple is struggling due to the threat that President Donald Trump's trade agenda poses to its business, while Amgen faced a clinical setback late last year.
Apple and Amgen have lagged the market over the trailing-12-month period, but despite their issues, both stocks are worth investing in for the long haul. Here's why.
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1. Apple
Apple does most of its manufacturing abroad, especially in China, the country that has been Trump's favorite target for tariffs. If heavy duties on imports from China stay in place, the iPhone maker will see its costs rise significantly; margins will drop, and so will earnings.
These are legitimate concerns. But several aspects of Apple's business can help it overcome this potential headwind, even beyond the fact that the steep tariffs Trump is looking to impose may not survive his administration.
First, Apple generates significant free cash flow, amounting to $98.5 billion over the trailing-12-month period. This can enable the company to shift production to countries with less severe tariffs while strengthening its domestic manufacturing capabilities, a project it's already working on.
Second, Apple's competitive edge comes partly from its brand name, one of the most valuable in the world. Brand power can work wonders, allowing a corporation to pass on higher manufacturing costs to consumers without losing significant market share. That's another way Apple could navigate this problem.
Meanwhile, the company has some important growth avenues, none more so than its services segment. Apple has an installed base of more than 2 billion devices, and more than 1 billion paid subscriptions. The services unit generates significantly higher margins than the hardware segment. As it continues to grow its sales faster than the rest of the business, it will eventually lead to stronger profits and margins.
And Apple has the cash to invest in other monetization schemes; expect the tech giant to do precisely that in the long run. Its ambitions in fintech -- through several initiatives, including Apple Pay -- should pay off down the road.
Lastly, Apple is a terrific dividend stock, despite a relatively unimpressive current yield of 0.5%. The company has doubled its payouts in the past decade.
While Apple shares are down 19% this year, the stock still has a lot to offer long-term, growth-oriented investors: a strong moat, lucrative growth avenues, and an internal culture of innovation. Apple has crushed the market over long periods for good reasons, and it isn't about to stop.
2. Amgen
Amgen is seeking its next blockbuster medicine, a goal that drugmakers continually strive for in order to fend off competition, including that from biosimilars. Yet one of the company's most promising candidates, weight management medicine MariTide, failed to produce the kinds of results the market wanted in a phase 2 clinical trial, and the stock fell.
Even so, MariTide looks far more promising than that plunge suggests. The medicine led to an average weight loss of about 20% after 52 weeks, with no plateau observed.
And importantly, MariTide is administered once a month, versus once a week for the current leaders. That could attract a good number of patients, even with lower efficacy. Convenience is a great selling point, and a monthly dosing schedule is far more convenient.
Elsewhere, the company continues to generate robust financial results. Amgen grew its revenue by a strong 9% year over year to $8.1 billion in the first quarter, while adjusted earnings per share rose 24% to $4.90. Several medications should drive top-line growth for a while, including Tepezza, a medicine for thyroid eye disease, and Tezspire, an asthma treatment.
Amgen also has a deep pipeline, with several dozen programs that should eventually lead to new approvals and label expansions. The biotech's innovative capabilities have enabled it to perform well over the past few decades. That should remain the case.
Finally, Amgen has been an exemplary dividend stock since it initiated its first payout in 2011; it has increased its dividend by 750% since then. Its forward yield currently tops 3.4%, and is much higher than the S&P 500's 1.3%.
Amgen may have lagged broader equities over the past 12 months, but the stock still has a solid underlying business. That could deliver strong returns and consistent dividend growth if you initiate a position today and hold on for the long term.
