Why Apple Stock Will Continue to Outperform in 2021
A big jump in orders and rapid growth in international sales in its last reported quarter has raised investor optimism about Apple Inc.'s (AAPL) future performance.
The world’s highest-selling 5G smartphone company, Apple Inc. (AAPL - Get Rating), delivered impressive numbers in its last quarterly earnings report. This, despite the ongoing impact of the COVID-19 pandemic, which continues to present an extremely volatile and challenging macro environment for industries worldwide.
Since the onset of the pandemic, AAPL’s offerings have been essential for many companies and individuals to stay operational, and in some cases helped them thrive. As such, AAPL’s services and Mac product revenues hit all-time highs. AAPL’s revenue has grown in every segment.
AAPL should benefit largely from its 5G-enabled iPhone line-up. These iPhone versions are expected to smash all previous sales records for its mobile phones. With increasing orders driven by outsized demand, the company should witness significant revenue growth this year.
Apple’s prolific product innovations and introductions and the unmatched loyalty of its customers have helped it gain 74% over the past year. This impressive performance, combined with several other factors, has helped AAPL earn a “Strong Buy” rating in our proprietary rating system.
Here is how our proprietary POWR Ratings system evaluates AAPL:
Trade Grade: A
AAPL is currently trading above its 50-day and 200-day moving averages of $121.28 and $100.91, respectively, indicating that the stock is in an uptrend. Also, the stock has gained 14.5% over the past three months, reflecting solid short-term bullishness.
AAPL’s services revenue has increased 16.3% year-over-year to $14.55 billion in the fourth quarter ended September 30, 2020. Net Mac sales rose 29.2% from the prior-year quarter to $9.03 billion, while cash flow from operating activities rose 16.3% from the year-ago value to $80.67 billion.
In December, AAPL announced the launch of AirPods Max with high-fidelity audio, active noise cancellation, and spatial audio. The company also recently introduced Apple Fitness+, which gives users the option to work-out anywhere and at any time with the screen that best suits them. These breakthrough products should broaden AAPL’s market reach and give a boost to its revenue.
AAPL has also recently unveiled a new line of Mac products, such as the new MacBook Air, 13-inch MacBook Pro, and Mac mini powered by the M1 Processors–its first generation of internally produced chips. It is hoped that the new features in the new line-up will enable the company to provide seamless experiences to all its customers and by so doing drive business growth.
Buy & Hold Grade: A
In terms of proximity to its 52-week high, which is a key factor that our Buy & Hold Grade considers, AAPL is well positioned. The stock is currently trading just 5.9% below its 52-week high of $138.79, which it hit on December 29.
The company’s net revenue has grown at a CAGR of 6.2% over the past three years, while net income increased at a CAGR of 5.9% over this period. Also, AAPL’s EPS has increased at a CAGR of 12.5% over the past three years. This can be attributed to its continued investments in innovative platforms to better serve its large and loyal customer base.
Peer Grade: B
AAPL is currently ranked #1 of 39 stocks in the Technology – Hardware industry. Other popular stocks in this industry are Dell Technologies Inc. (DELL - Get Rating), HP Inc. (HPQ - Get Rating) and Koninklijke Philips N.V. (PHG - Get Rating)
PHG, HPQ, and DELL gained 16.3%, 17.4%, and 43.4%, respectively, over the past year. This compares to AAPL’s 74% returns over this period.
Industry Rank: A
The Technology – Hardware industry is ranked #2 of the 123 StockNews.com industries. The companies in this industry are involved in the production of smartphones, personal computers, cameras, monitors, keyboards, mice, and webcams, as well as ATMs, self-service kiosks, point-of-sale terminals, and biometric readers.
Remote work, online education and social distancing have created a massive demand for products and services delivered by the tech industry. It has successfully weathered past crises and found novel ways to emerge stronger than ever. In fact, tech companies have been leading the way for other industries to survive the crisis.
Overall POWR Rating: A (Strong Buy)
AAPL is rated “Strong Buy” due to its impressive financials, short- and long-term bullishness, solid price momentum, and underlying industry strength, as determined by the four components of our overall POWR Rating.
AAPL is well positioned to outperform the broader market this year despite gaining 74% over the past year. With iPad and Mac sales growing substantially because of COVID-19-related work- and learn-from-home trends, the company should witness long-term strength in wearable and services revenue.
Analyst sentiment, which gives a good sense of a stock’s future price movement, is good for AAPL. It has an average broker rating of 1.51, indicating favorable analyst sentiment. Of38 Wall Street analysts that rated the stock, 11 rated it a “Strong Buy.” The consensus EPS estimate of $0.88 for the quarter ending March 31, 2021 represents a 37.5% improvement year-over-year. Moreover, AAPL has an impressive earnings surprise history, with the company beating consensus EPS estimates in each of the trailing four quarters. A consensus revenue estimate of $73.15 billion for the next quarter represents a 25.4% increase from the same period last year. We think this outlook should keep AAPL’s momentum alive.
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AAPL shares were trading at $129.52 per share on Wednesday morning, down $1.49 (-1.14%). Year-to-date, AAPL has declined -2.39%, versus a 0.32% rise in the benchmark S&P 500 index during the same period.