One of the stocks I’ve been most bullish on in recent years is Apple (AAPL). Indeed, AAPL stock has seen tremendous growth over the past decade, and in particular over the past few years. Much of this growth can be attributed to the company’s successful domination of the high-end smartphone market.
At the same time, investors need to remember that the Apple ecosystem is among the strongest of its peers. Various super cycles in phone upgrades have certainly driven the majority of Apple’s top and bottom line growth. However, there are other incredible growing divisions investors are looking to, for longer-term profit growth.
Additionally, services have become increasingly important for Apples in its long-term plans. The company has been able to increase its gross margins over time, as its mix shifts more to services from products. This has led to some rather impressive results of late.
There’s certainly a prevailing view that APPL stock can continue higher over the long-run. However, given how stretched valuations are, perhaps investors will want to take a breather with mega cap stocks.
Here’s why the outlook for AAPL stock appears to remain bright. (See Apple stock analysis on TipRanks)
Grasping the AAPL Upgrade Cycle – 2014
One of the key catalysts many investors have grasped onto in recent years has been the idea of the iPhone supercycle. As smartphone users continue to upgrade their phones to newer models to take advantage of the new features Apple rolls out every year, Apple earns a predictable (and growing) revenue and cash flow stream, over time.
Currently, iPhone users show no signs of slowing their upgrade patterns. Given that the average screen size has continued to increase, and new features are released every year, expectations are that this cycle could continue for some time.
Of course, when Apple runs out of new ideas is when investors start getting concerned. Accordingly, AAPL stock continues to be a play on the innovation Apple can bring to the technological gadget space.
Thus far, the returns AAPL stock has provided investors show just how bullish the market is on the company’s potential. This view has been bolstered by otherwise impressive earnings.
This past quarter, Apple set a record for earnings. Its revenue surged 36% to $81.4 billion. That’s in a single quarter.
The main driver, of course, was iPhone sales. Expectations are that the newest edition of the iPhone (expected to be announced on Tuesday) could further bullish predictions of Apple stock from here.
That’s because approximately 84% of Apple iPhone users do not have a 5G-compatible phone. Given the impressive nature of 5G phones, it’s expected that this coming year could be a good one for Apple.
The Upgrade Supercycle Continues with iPhone 12
The first supercycle was led by an upgrade in the iPhone screen size. However, the current supercycle will have nothing to do with screen size. Rather, it is being driven by the arrival of 5G. Telecom carriers are rapidly developing 5G technology globally. For those bullish on what 5G could bring to the smartphone world, that’s extremely bullish for Apple.
Simply put, necessity is what is driving the current upgrade cycle. Of course, users can stick to a smaller older phone. Yet faster internet is what the world requires right now. This is what Counterpoints Research Study in 2019 found – consumers are ready to spend 20% more on 5G smartphones.
Moreover, there are still 800 million iPhones looking to be upgraded. This figure is much bigger than AAPL’s installed base in 2014.
Finally, investors must also note that 5G phones have the potential to further increasing Apple’s average selling price. So, AAPL may also have a lot of room to tweak its device prices, increasing its margins.
Accordingly, analysts expect 250 million iPhone shipments this year. This is incredible growth, considering what Apple saw in terms of phone delivery numbers in previous years. Given the company’s growing ecosystem, it’s likely 5G could be the catalyst that could take AAPL stock much higher. In fact, analysts are predicting nearly 18% earnings growth in AAPL this coming year.
Analysts Take on AAPL Stock
According to TipRanks’ analysts rating consensus, AAPL stock is a Moderate Buy. Out of 22 ratings, there are 16 Buy recommendations and 6 Hold recommendations.
The average Apple price target is $166.71, implying upside of 11.90%. Analysts targets range between a high of $185 per share and a low of $132 per share.
Bottom Line
AAPL seems to be benefiting from stronger catalysts right now than it has in previous years. There’s certainly a lot of bullish sentiment around this stock, for good reason.
Apple is a mega cap stock that’s simply hard to bet against right now. Sure, there have been some recent legal issues surrounding the company’s Apple store, which should impact earnings. But stepping back and looking at the bigger picture with Apple, the core drivers are still there.
Accordingly, AAPL stock remains a no-brainer holding for those with a long-term portfolio right now.
Disclosure: At the time of publication, Chris MacDonald did not have a position in any of the securities mentioned in this article
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