Apple Inc.
The recent selloff and trading halts in the Shanghai Composite resulted in stock markets tumbling across the world. In the United States, Apple has fared worse than the S&P 500 in 2016. China's ongoing economic slowdown has caused some investors to be wary of Apple. Apple's recent growth in the past few years has come mainly from China, as more of its people have turned to luxury consumer electronics and online services. Recessionary conditions in China would mean that its population will consume Apple products at a slower rate. In addition, new developments concerning the iPhone, which accounts for over 60 percent of revenue, point to a problem of decreasing demand. Reports from sources such as Morgan Stanley
However, Apple maintains healthy financials. According to Morningstar, it has a forward price to earnings ratio of 9, unusually low compared to its NASDAQ peers. It has a decent debt to equity ratio of 0.4 and now yields 2.09 percent. Apple also boasts 3-year average revenue growth of 14.3 percent, operating and net margin TTM of 30.5 and 22.9 percent, and return on assets and equity TTM of 20.5 and 46.3 percent. The only blemish is 3-year average net income growth of 8.6 percent, lower than the industry average. Of course, Apple also has around $206 billion in cash and equivalents and almost $70 billion in annual free cash flow. So Apple seems fundamentally sound; investor demand must improve. Some scenarios will lead to bullish sentiment. One is if Apple's 2016 first quarter earnings beat expectations, showing that December stock downgrades and China fears were misguided. Apple might beat its tepid guidance from the fourth quarter because its China sales have risen year over year, meaning it has a chance to surprise. Another is that investors will snap up shares under $100 due to the attractive dividend and the amazingly low valuation. Coupled with Apple's expected $36 billion buyback, the stock has a case for heading above $125 again.
While Wall Street could have a gloomy outlook on Apple, some important investors hold a contrasting view. In 2015 billionaire investor Carl Icahn, who owns over 52 million Apple shares, named a price target of $240. Appreciation is in Apple's future, for it is arguably undervalued.
The author holds a long position in AAPL.