Apple (NASDAQ: AAPL) has continued to develop its ecosystem, and has bought back billions of stock, which might further reward shareholders in the future. In this clip from “The Rank” on Motley Fool Live, recorded on April 25, Motley Fool contributors Zane Fracek, Matt Frankel, Jason Hall discuss whether Apple is a buy today at its current valuation.
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Zane Fracek: It’s continuing to impress me just how efficiently it can make money. And some people will say, they’re kind of out of those projects that are going to give them a positive return on their investment because the barrier for them to invest cash is so high, right? People are saying maybe they’ll have an Apple car or something, but I think that’s very unlikely, just because the margins there would likely be way lower than how the business is run right now. So, they’d be better off not doing it. But that said, they’re finding things that they can do like Apple TV, which has been around for a long time, yet it’s still growing really fast, right? It doubled its amount of subscribers. I’m sorry, that was Apple Pay with the cardholders. So, you can get the Apple card. This is another part of their ecosystem that they’re building up. The number of cardholders doubled in 2020 of the 6.4 million. Now they have 25 million subscribers on Apple TV, so they’re really just building a strong ecosystem. Their profitability is increasing. They made $93 billion in free cash flow and, I don’t think they’re done there. I think they’re going to continue growing their revenue steadily about 10% a year, which is what we’ve seen. Now that they’re more vertically integrated, designing their own M1 chip, I think that’s going to help them out, and allow them to bring higher margins to the bottom line. On top of that, like we’re talking a lot about how these companies are rewarding shareholders, and I think Apple is doing a really good job with that, buying back billions in stock and billions in dividends while still sitting on a massive cash pile. So it could be even more rewarding for shareholders in the future. The one stat I saw that was just amazing to me just recently, I think in the last couple of years, they’ve bought back so much stock that they’ve cut the total number of shares outstanding by 25%, which is just really going to increase everyone’s ownership in the business and reward shareholders. So that’s why it’s my No. 1.
Matt Frankel: I ranked it highly even though I sold Apple about six months ago. It’s a powerhouse business. I don’t think anyone would go wrong owning it today. I see limited upside potential from here, but it’s a perfect Buffett stock in that respect. It’s one of the stickiest businesses in the world, greatest pricing power of any consumer electronics company I could name in history. It’s just an all-around fantastic business.
Jason Hall: The way I think about Apple is, again, at this valuation, even with all those positive things, I have far more higher conviction in Berkshire (NYSE: BRK.A) (NYSE: BRK.B) and I would get my exposure to Apple by owning Berkshire. That’s how I think about it.
Jason Hall has no position in any of the stocks mentioned. Matthew Frankel, CFP® has positions in Berkshire Hathaway (B shares). Zane Fracek has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple and Berkshire Hathaway (B shares). The Motley Fool recommends the following options: long January 2023 $200 calls on Berkshire Hathaway (B shares), long March 2023 $120 calls on Apple, short January 2023 $200 puts on Berkshire Hathaway (B shares), short January 2023 $265 calls on Berkshire Hathaway (B shares), and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.