As January 2024 kicked in, Apple (NASDAQ:AAPL) received downgrades from analysts, resulting in some selling pressure affecting AAPL stock. As a result of this downside pressure, and the meteoric rise of Microsoft (NASDAQ:MSFT) over the past year, Apple has relinquished the reigns of the world’s largest company by market capitalization to Microsoft.
Now the second-largest publicly-traded company, some investors may wonder if Apple has lost its edge. After all, the company relies on the same product mix it has for years, and little in the way of innovation for its core product portfolio could weaken demand for new iPhones and other Apple devices.
The company has been increasing its sales from wearable tech, with nearly $40 billion coming from this segment. However, an ongoing lawsuit tied to its blood oxygen sensor technology has provided some growth concerns in this segment.
Services revenue and margin growth will likely continue to be the story for Apple moving forward. But with little in the way of top-line growth expected in the next couple years, the question is whether this stock is worth its valuation multiple of 31-times earnings.
Let’s dive in.
Why AAPL Stock Is Viewed As a Must-Buy in 2024
Apple is known for its reliability and consistent and substantial revenue and profits. These factors are rooted in two of the company’s greatest values: customer loyalty and brand strength.
With its vast international device presence, it boosts service revenue such as Apple Pay, Music, and App Store. It hit a record high in the past year, plus the company has a staggering cash reserve of almost $62 billion.
Non-current marketable securities are at $100.5 billion, making Apple stand out from its competition despite returns to shareholders.
One thing about Apple is the company also provides generous dividend payouts to its investors. From September 2022 to September 23, Apple paid over $15 billion in dividends and has spent about $77.5 billion on stock buybacks. In the recent quarter alone, the company returned nearly $25 billion to shareholders.
Despite its heavy investments in Apple’s services and products, Apple’s CEO Tim Cook expressed his optimism and enthusiasm for the Vision Pro, anticipating a new level of cloud computing. The jury remains out on whether this new product segment will be a hit, but it’s a step in the right direction.
New iOS 17.3 Security Features
On January 23, Apple released its newest iOS update: the iOS 17.3 and iPadOS 17.3. The update became an instant buzz and talk of the week as it features a Stolen Device Protection, one of which other smartphone companies have yet to tap into.
The security features were made accessible and available to users in real time, unlike Google which had to make staggered launch dates for a similar security feature for their own products. The Stolen Device Protection feature allows users to enhance security for Apple devices that are stolen and have passcodes.
The iOS update mandates both Touch ID and Face ID to change biometric authentication after an hour of losing the device or if the device is not in a familiar location.
Aside from the security feature, the iOS updates also include new sets of wallpapers, hotel support for AirPlay, and collaborative playlist features. Although these features should’ve existed earlier, there are rumors that Android devices will also release the same features soon.
A Steady Growth Stock
Most of Apple’s revenue (more than 50% of its top line) is driven by the iPhone. Despite Apple’s market share of only 20% of global smartphone shipments, the iPhone currently holds 80% market share in terms of the industry’s operating income. This is what drives Apple’s incredible profitability.
Aside from its core iPhone division, Apple’s strength also comes from its expansive ecosystem. Its growing services, mainly iCloud, NEws, TV+, Apple Pay, and Music have shown impressive revenue growth, which surged 9% year-over-year this past quarter. This segment constitutes 22% of the total sales of Apple, at an impressive 71% gross margin.
Apple’s strong Services segment numbers not only highlight the profitability of the company but also reiterates the importance of Apple’s brand and the loyalty of its customer base.
AAPL Stock Remains a Buy
Yes, AAPL stock is a company trading at a valuation premium with slowing growth. Yes, there are plenty of headwinds to consider. And if we do see a recession, consumers will likely wait a year or two to upgrade their $1,500 phone.
However, it’s also clear that Apple is innovating in terms of its products and services. The company’s recent security upgrades, the release of the Vision Pro, and other upcoming product releases could spur future growth many aren’t considering right now. Thus, I think Apple has to remain a part of investor portfolios right now, whether they like it or not. This is a company that’s just too solid and consistent to avoid right now.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.