One of the key strategies for successful investing is to build a well-diversified and balanced portfolio of 25-30 stocks and hold them for the long term. Still, every investor has to start somewhere, and having the funds for so many stocks at once isn’t necessarily practical.
If I had to start over today, I would look for a company with a solid history of growth, the ability to weather an economic storm, and a history of listening to its shareholders. That’s why I think Apple (AAPL -2.03%) is an excellent choice.
The story in a nutshell
Apple is one of the most successful consumer product companies in the world, thanks to a number of groundbreaking products that have become household names. Far from being a one-trick pony, Apple continues to innovate with its existing products while searching for the “next big thing.” The company is undoubtedly the most successful smartphone maker on the market, but is augmenting that success with a wide range of consumer products and a growing battery of services.
Often imitated but never replicated, Apple has an impressive market share with many of its products. This has resulted in a fortress-like balance sheet, while allowing for generous returns to shareholders. The company’s products are among the most recognizable and beloved in the world, which should help the company continue to generate above-market returns for years to come.
Built on the iconic iPhone
The 800-pound gorilla in the room is the iPhone. While it wasn’t Apple’s first successful product (I’m looking at you, iPod), it was the one that catapulted Apple to its current level of fame and fortune.
The iPhone has the largest market share of any smartphone in the United States and is the world’s No. 2 (sometimes occupying the top spot). There are currently 1 billion active iPhones in use worldwide, and that number continues to grow.
Apple recently launched the new iPhone 14, which has all the makings of another incredibly successful device. Wedbush analyst Daniel Ives points to long and growing wait times for shipment, as some models have delivery dates of four to six weeks. This indicates strong demand for the latest version of the company’s flagship device. Additionally, Ives estimates that approximately 240 million iPhone users have not upgraded their phones in the past 3 1/2 years, leading to strong pent-up demand even in the face of economic headwinds. .
It’s worth noting that the iPhone is responsible for the lion’s share of Apple’s sales, generating nearly 54% of revenue in the first nine months of fiscal 2022 (ending June 25). This could pose a risk if users ever fall in love with the iPhone.
Much more than the iPhone
Beyond the iPhone, Apple offers a growing list of products and services that generate nearly half of the company’s sales. Mac, the Apple computer that started it all, has a strong and loyal customer base responsible for 15% of all personal computer shipments in the United States. The iPad, the company’s laptop, is the market leader and controls 31% of the global tablet market.
Similarly, the Apple Watch dominates the market, with a 36% market share, selling more than three times as many smartwatches as its closest competitor. The tech titan is also an undisputed leader in the headphone market, with nearly 50% of consumers in the US using Apple’s AirPods or Beats headphones.
It all started with the App Store and iTunes, but Apple’s service offerings are vast and growing. The list includes award-winning programming on Apple TV+, high-res audio on Apple Music, and secure payments with Apple Wallet. There are also mobile games on Apple Arcade, news on Apple News+, workouts on Apple Fitness+, digital storage on iCloud, and more. Services has been among Apple’s fastest growing segments in recent years, up nearly 18% year over year in the first nine months of fiscal 2022.
This large and growing list of category-leading products and services provides a level of security that Apple will continue to deliver steady results for years to come.
Strong shareholder returns
Apple ranks high on the list of shareholder-friendly companies, which benefits investors in more ways than one.
First, it started paying a dividend again in 2012, and since then it has built up an outstanding track record. What started as a meager payout of $0.095 adjusted for payouts has jumped 143% in just 10 years. While its yield is still a relatively low 0.6%, that’s a function of growth in Apple’s stock price, which has gained more than 500% over the past decade even after the impact of the recent market bearish. Plus, the company only uses 15% of its profits to fund the payout, so there’s plenty more where that came from.
Then there’s the generous stock buyback program. The company has repurchased shares over the past decade, retiring nearly 39% of its outstanding shares. This means that each shareholder gets an increasing slice of the apple pie.
Data by Y charts.
A port in the storm
Finally, Apple’s consistently strong results and fortress-shaped balance sheet provide investors with a safe harbor in the event of an economic storm. For the first nine months of fiscal 2022, Apple’s revenue of $304 billion was up 8% year over year, while its earnings per share of 4.86 dollars increased by 10%. This is a remarkable achievement, especially given the size of the company and the growing economic headwinds it has faced.
But don’t worry: even if macroeconomic conditions worsen, Apple has the resources to weather the storm. The company has about $60 billion of net cash on its balance sheet, which would allow it to fare well during tough times.
For these reasons and more, Apple is the stock I would buy if I could only buy one.
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