Is Apple Still A Smart Investment?

You probably don’t want to hear this but here is the thing – while Apple (NASDAQ: AAPL) is still a brilliant company, it might no longer be a brilliant stock. Let’s get one thing out of the way: this isn’t about Warren Buffett selling Apple. This is about cold, hard numbers that tell a very different story from the one Apple fans like to hear.

Apple has a history of innovation, brand loyalty, strong margins, and a war chest of cash. All true. But as an investment today – with a P/E pushing 35 and barely any growth or yields to show for it – Apple looks more like a nostalgia play than a value generator. These are just some of the factors we take into consideration when creating our High-Quality portfolio, which has outperformed the S&P 500 and achieved returns greater than 91% since inception

Julian O’hayon (@anckor) on Unsplash

High Valuation, Low Returns: The Math Doesn’t Add Up

With a P/E ratio of nearly 35, you expect one of two things:

1. Rapid, sustainable growth, or
2. Robust yields – either through dividends or cash flows.

Apple gives you neither.

• Last 12 months of revenue growth? Just 2.6%.
• Three-year average annual growth? Even lower at 1.5%.

That’s not a growth stock. That’s a mature company pretending to wear a growth valuation.

And what about yields? Disappointing there too.

• Free cash flow yield: <3% — that’s based on roughly $100 billion in annual free cash flow against a market cap north of $3.35 trillion. Let’s put this in perspective: Adobe offers 5.5% yield, Altria a more impressive 8.5%. and WRB a juicy 12.5% free cash flow yield.
• Dividend yield? nonexistent for income seekers.

Remind us, why should you hold Apple again?

Great Business Is Not Necessarily Great Investment

Let’s be clear: Apple as a company is phenomenal.

• Best-in-class margins: Operating margin >30%
• Cash cow: Free cash flow margin around 25%
• Customer loyalty: Unmatched
• Ecosystem lock-in: Massive
• Balance sheet: Extremely strong with huge cash pile

But investing isn’t about just buying great companies – it’s about buying great companies at the right price. And at 35x earnings with no growth, dismal yields, and no dividends, Apple has become a low-yield bond with tech volatility. It has barely returned anything since the beginning of 2021 while exhibiting annualized volatility > 1.5x that of SPY.

Could Apple still work as a swing trade? Absolutely. It’s liquid, it’s widely followed, and it reacts well to macro news and earnings beats. But as a long-term, income-generating, wealth-compounding core position – we are not so sure. 

We consistently evaluate stocks to eliminate those that we think have run out of juice, as we construct and rebalance our High Quality (HQ) Portfolio which, with a collection of 30 stocks, has a track record of comfortably outperforming the S&P 500 over the last 4-year period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics.