Computer technology continues to change rapidly. We feel the best way to profit from this growth is by investing in well-established companies that lead their markets. That includes Apple, which has a strong balance sheet and solid earnings. That means it can focus on product development and buying small firms with new technology.
APPLE INC. (Nasdaq symbol AAPL; www.apple.com) gets about two-thirds of its revenue from its iPhone smartphone. The remaining third comes from its Mac computers, iPad tablets, iPod music players and sales of software, movies and music through its iTunes online store.
In its fiscal 2016 first quarter, which ended December 26, 2015, Apple sold 74.8 million iPhones, up just 0.4% from 74.5 million a year earlier. That’s mainly due to slowing demand in China. Users are also waiting for the company to launch a new model later this year.
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Overall earnings rose 1.8% to $18.4 billion from $18.0 billion. Per-share profits gained 7.2%, to $3.28 from $3.06, on fewer shares outstanding. Sales rose 1.7%, to $75.9 billion from $74.6 billion.
Apple aims to cut its reliance on the iPhone with several new products. For example, in April 2015, it launched the Apple Watch, a touch-screen wristwatch that displays messages, photos and other information.
Growth Stocks: Apple focused on innovation
Another new product, Apple Pay, lets iPhone users pay for goods at tap-and-pay-enabled cash registers and at some retailers’ websites. The service is now available at 1.5 million merchants worldwide.
The company is also working on other innovative products, which likely includes Internet-connected TV sets and electric cars. That’s why its research spending jumped 26.9% in the latest quarter, to $2.4 billion from $1.9 billion a year earlier.
Apple holds cash and investments of $215.7 billion, or $38.91 a share, so it can easily afford to keep investing in new products. As well, its long-term debt of $53.2 billion is a low 10% of its market cap.
In February, the stock traded at just 9.8 times the $9.47 a share that Apple will likely earn in fiscal 2016. However, the company predicts that its revenue in the current quarter will fall about 11% from a year earlier — its first year-over-year revenue decline since 2003. The $2.08 dividend yields 2.2%.
Recommendation in Wall Street Stock Forecaster: HOLD For our recent report on the prospects of one of Canada’s most prominent tech stocks, read Blackberry’s future depends on software.
For our view on the place of growth stocks in your portfolio, read Growth investing balances an investor’s portfolio.
