When it comes to its stock performance, Apple is following Microsoft. It’s where Microsoft’s stock was at the end of Dot-com bubble.
A value play for conservative investors.
That’s according to Jeff Yastine, senior equities analysts at Banyan Hill Publishing. Apple’s “days of ‘hockey stick’ superfast growth might be over,” says Yastine. “But it’s just beginning a far longer era of moderate, sustainable growth that makes it a core holding for more conservative-minded investors.”
Conservative investors can count on Apple’s cash, which can be used for dividend hikes. “With $66 billion in cash, strong consistent cash flow from its services operations, and a dividend payout ratio of roughly 25%, Apple is just beginning to be an income investor’s favorite stock,” adds Yastine. “I expect Apple to once again raise its dividend sometime in late April or early May by another 5-10%.”
That’s not bad in a low inflation environment.
Meanwhile, Apple’s momentum could be revived again once the next big thing comes along.
What might that be? 5G internet technology, according to Yastine.
“The key to Apple’s next big gusher of profits is superfast 5G internet technology,” explains Yastine. “The rollout of 5G won’t happen in earnest until 2020, so it’s just a little too far off the radar yet to make a difference to the stock right now. But as Americans begin to experience what it’s like surfing the internet with 5G technology, I believe they will run not walk to their local Apple stores to buy a 5G-enabled iPhone, and Apple will start a whole new cycle of rising profits.”
Then there’s Apple’s potential in India, a country with a big fortune at the bottom of the pyramid, to use a term C.K. Prahalad a couple of decades ago. That’s the trillions in disposable income waiting in the hands of the masses of poor at the bottom of India’s income pyramid.
Tapping into this market could make it up for Apple’s shortfall in China. But it won’t be easy. It requires cheaper versions of iPhone, which will depress Apple’s margins.
Meanwhile, there’s Apple ID, the company’s vehicle for making the transition from a manufacturing to a service company. Apple’s service revenue jumped 27% in 2018 to reached $10 billion. And it has been highlighted on its recent financial reports.
This transition to services could set the stage for the adoption of SaaS (Software as a Service), Apple’s software distribution model in which a third-party provider hosts applications and makes them available to customers over its devices. SaaS has already been tested successfully in a number of high-tech companies, including Systems and Salesforce. It has provided them with steady revenue and earnings flow, attractingWall Street’s attention.
And it could do the same for Apple.