Wrapping up the year, Apple (NASDAQ:AAPL) stock is finishing strong. The tech giant's 42% jump significantly outperformed the S&P 500's comparatively paltry 13% gain.
After such a great year, the biggest concerns for many Apple shareholders could probably be summed up in one question: Is the stock still worth holding on to?
I think so. Here are three reasons why I won't be selling Apple stock.
1. Apple's iPhone business is firing on all cylinders.
Thanks to what appears to be a wildly successful iPhone 6 line, analysts are incredibly bullish about iPhone sales in Apple's first-fiscal quarter of 2015, which ends before the New Year. The consensus estimate for iPhone sales during Q1 is 63 million, up 23.5% from Apple's previous quarterly record of 51 million units, which was set in the first fiscal quarter of 2014.
Considering that Apple's iPhone segment is both its most profitable and its biggest, this sort of growth would mean that Apple's already lucrative free cash flow would likely see a substantial year-over-year boost in Q1. The continued growth in Apple's cash-cow product segment would reinforce just how valuable the company's war chest for dividends, repurchases, and future investments really is. And even if Apple's iPhone growth falls short of the consensus in Q1, the continued general upward trend for Apple's iPhone business suggests that meaningful growth in unit sales is still likely -- and a year-over-year decline is virtually impossible.
Looking out further for Apple's iPhone business, there's a key opportunity in the world's largest smartphone market -- China. The world's most populous country still looks like a pristine opportunity for the company. Morgan Stanley's longtime Apple analyst Katy Huberty, who has an "overweight" rating on Apple stock and a $126 price target, said in a recent note to investors that her data points to consumer demand for iPhones in China growing about three times faster than the year-over-year growth in demand for iPhones globally.
2. The Apple Watch offers upside potential.
Predicting the success of Apple's new smartwatch is incredibly difficult. The current analyst estimates for sales of the Apple Watch in 2015 is about 23 million. For some perspective, Apple sold about 170 million iPhones in 2014.
But one thing is clear: Apple's customer base for this product launch is far larger than it was at the time of any other Apple product launch in the past, making big sales numbers not only viable, but also likely. With the launch of the Apple Watch, more Apple customers than ever will have an opportunity to add the latest Apple product to their ecosystem. If you define the potential customer base of the Apple Watch as Apple customers with the iPhone 5 or later -- because it's only the iPhone 5 or later that is compatible with the Apple Watch -- potential customers number greater than 315 million -- a monstrous figure.
3. Valuation is still reasonable.
While Apple isn't the same dirt-cheap stock it was at the beginning of 2014, it's still not expensive. A price-to-earnings ratio of 18 isn't bad for a company that grew its earnings per share 20% year over year in Q4.
Looking out a bit, Apple should continue to grow earnings with the help of a healthy iPhone business, continued share repurchases, and potential upside from the Apple Watch. Then, of course, there is Apple's growing dividend, which Apple said in April it "plans to increase ... on an annual basis."
Unless Apple stock skyrockets to an irrational high during 2015 -- to a point where the stock is grossly overvalued -- I won't be selling.
Daniel Sparks owns shares of Apple. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.