Technology stocks tend to be riskier than our other recommendations in the Manufacturing & Industry sector. That’s mainly because innovations can quickly make today’s products obsolete.
To cut your risk, you should focus on well-established tech firms with special advantages, such as plenty of cash to invest in new products. Last week, we reported on Microsoft (click here to see the article). Today we look at another market leader we follow regularly in Wall Street Stock Forecaster.
APPLE INC. (Nasdaq symbol AAPL; www.apple.com) continues to profit from its hugely popular mobile devices: the iPhone smartphone and the iPad tablet computer. These products account for 75% of its sales. The remaining 25% comes from its Mac computers, iPod music players and revenue from its iTunes online store.
In its 2014 first quarter, which ended December 28, 2013, Apple’s sales rose 5.7%, to $57.6 billion from $54.5 billion a year earlier. The company sold a record 51.0 million iPhones in the latest quarter, up 6.8%. iPad sales gained 13.9%, to a record 26.0 million units. Apple also sold 19.1% more Mac computers, but iPod sales fell 52.3% as users continue to upgrade to iPhones.
However, Apple is paying more for components after it upgraded its iPhones and iPads in 2013. As a result, its earnings were unchanged at $13.1 billion. Earnings per share rose 5.0%, to $14.50 from $13.81, on fewer shares outstanding.
Tech stocks: Activist investor pushes Apple for more share buybacks
Higher spending on product development also slowed earnings growth. Apple’s research costs jumped 31.7% in the latest quarter, to $1.3 billion (or 2.3% of sales) from $1.0 billion (or 1.9%) a year earlier.
Apple holds a huge cash balance of $158.8 billion, or $177.98 a share, and its long-term debt is just $17.0 billion.
Activist investor Carl Icahn owns about 1% of Apple and wants it to spend more on share buybacks. In April 2013, the company increased its repurchase authorization from $10 billion to $60 billion. Since then, it has spent $28 billion on buybacks. It expects to complete the remaining $32 billion of these purchases by December 2015.
The company will probably earn $43.69 a share in fiscal 2014. The $12.20 dividend yields 2.4%.
In the latest edition of Wall Street Stock Forecaster, we examine Apple’s ability to combat the growing competition from cheaper mobile devices, especially in China and other emerging markets. We conclude with our clear buy-hold-sell advice on this stock.
If you’re a member of Pat’s Inner Circle and you’d like to ask a question about today’s article, please go to the question page reserved for you (be sure you’re logged in first). Click here to ask your question.
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A large measure of Apple’s success depends on staying ahead of the competition in mobile devices. Have you ever sold a tech stock because you were worried that it could not fight off the competition in its highest-profit areas? Are you willing to hold tech stocks for the long term? Or does the stiff competition in technology make you more inclined to sell a stock after you have realized significant gains?
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