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Here’s the fear: coronavirus will end up in a pandemic, Apple will not be able to supply its products and demand for iPhones will dry up around the world.
However, you should control your fears. The market offers a unique buying opportunity here. Coronavirus will eventually disappear and Apple stock will recover. So that means this is probably a good time to look at the basics of the stock.
On Friday, February 28, Apple CEO Tim Cook said in an interview that this is a “temporary condition.” He said he did not see any long-term difference between what happened four weeks ago and what is happening today. He said the market takes time to realize that.
With this he referred to the period before the coronavirus outbreak started. The point, he said, is that the company is run in the long run. He emphasized that the company has a global and resilient supply chain.
The bad news for Apple Stock
Last week, the company said it would not meet its quarterly guidelines. The company originally said the outlook was for $ 63 to $ 67 billion in revenue, but now it has no forecast.
The company said it experienced a longer time to return normally than originally expected. More to the point Apple said that its original guidance had a wider range than normal due to the coronavirus outbreak.
All of Apple’s manufacturing facilities are open in China. They are “ramped up slower than we had expected”, which leads to “lack of delivery on iPhone”. In addition, the stores that have opened have slow traffic.
As it stands, the APPL share is 16.6% lower than its market heights earlier this month. Does this mean that the company’s real value has permanently fallen so much? Probably not. Much of the sales were due to an overreaction to the coronavirus.
Repurchases help shareholders
In addition, it is very likely that Apple has repurchased its own shares during this period. A story I wrote in January described how these repurchases help both the company and the shareholders.
Over the past seven years, the company has reduced the number of shares by more than a third through repurchases. This has contributed to raising the dividend per share by 84%. However, the cost of these dividends increased by only 34%.
Source: Mark R. Hake, CFA
In other words, the repurchases accelerate the dividend per share. It also increases earnings per share. The same net result, divided into fewer shares, creates higher earnings per share.
Finally, and this is what’s important these days, repurchases provide a buffer for Apple shares. They prevent the stock from crashing completely. In fact, the company becomes a buyer of last resort.
Apple’s basics are still intact
Apple’s core features are extremely strong. At Apple’s revenue call at the end of January, the CFO said that the company has a net cash of $ 99 billion. As of today, it represents 8.25% of its market value of $ 1.2 trillion.
As mentioned above, it uses the cash to buy back its shares. Barron published a story over the weekend that investors should buy cash-rich stocks like Apple because they are likely to buy their own stocks.
Apple had 480 million paid subscribers at the end of 2019, almost its goal of 500 million by 2020. Apple still sells iPhones worldwide even though there have been some disruptions in its supply chain.
In its current trade, Apple trades for only 20 times futures revenue, and less than that including its net cash.
Investors should consider Apple shares
At this point, the market is likely to start nibbling at Apple when it looks like the coronavirus outbreak is under control or starting to get under control.
Investors should consider the fact that this is likely to be a temporary fall for Apple shares in the long run. As a result, they may want to add their positions or even start a new position.
At the time of writing, Mark Hake, CFA holds no position in any of the above securities. Mark Hake runs the Total Yield Value Guide which you can review here. The guide focuses on high total return values. Subscribers a two-week free trial.