How's it going today guys so today we're Going to be talking about Apple stock And our weekly stock analysis here on Stock radar and up next you guys voted And we're going to be covering Walt Disney stock next and we're going to Have a vote next week over in the Facebook group as to what you guys want To see next so if you guys want to vote On what stock I do each week and submit Your own stock for a vote make sure you Are active over there in that Facebook Group and if you don't have access to That right now it is the very first Section of the course I think it's Called read me it includes a link to Access the Facebook group as well as the Password you need to enter once you Actually try to get into the group you Have to type in a password there so make Sure you guys are part of that Facebook Group if you do have a Facebook account There's going to be a lot of valuable Stuff happening over there and you can Collaborate and talk with each other as Well about Investments but for this Video today we're going to be talking About Apple stock they trade under the Symbol AAPL they are a relatively new Company they are 41 years old they're One that we are all familiar with and They are an income and growth investment For a while we looked at a stock like Apple and called it a growth investment
But as of about five years ago they've Really been transitioning into more of An income oriented investment as well so For somebody who's looking to get Blended exposure of both growth and Income Apple might be a suitable choice For you but we're going to talk more About that looking at the pros and cons Of Apple stock in this video as well as The fundamentals now as far as that Price to earnings ratio goes it is one Of the lowest p e ratios you're going to See among large cap stocks with a p e of Just 17. now apple is most well known For their market capitalization they Have a market cap of 879 billion dollars They are the world's largest company in Terms of market cap and they will likely Be the first company to pass a one Trillion dollar market capitalization Unless Amazon is able to keep it up with This amazing growth they are having so My guess it's either going to be apple Or Amazon that is definitely a safe bet And that may happen in 2018 it wouldn't They wouldn't need that much of an Increase in the share price to become a One trillion dollar company now as far As the dividend goes apple pays a Dividend 1.45 percent and they've only Been paying a dividend for the last six Years they did pay one prior to that We're going to talk about that more but They have increased that dividend in
Every single one of those six years so First of all about the dividend Apple Actually used to pay a dividend from 1987 to 1995 but they decided to suspend That dividend and instead focus on a High growth model rather than rewarding Shareholders with income or quarterly Cash payments they decided their money Was better spent by actually reinvesting Back into the business and growing the Business and so they suspended dividends From 1995 to 2012. and in 2012 they Decided to start paying dividends again And in all those six years like we said That they've been paying dividends they Have been growing them since 2012. so Apple does have potential to be a very Serious income investment seeing that Dividend growth streak and they Certainly have the ability to pay that Dividend with the cash flow generated From the business so Apple might be a Very interesting Blended investment of Both growth and income for your Portfolio so now let's go go ahead and Talk about the pros and cons of Investing in Apple stock and like always We're going to start with the pros the First Pro for Apple stock is they are an Industry leader in terms of technology And design apple is one of the leading Technology companies out there as far as Large cap technology stocks go and they Are very well known for their design and
The little details and touches they put On their products there's things about Apple products that are like nothing Else out there it's the way that when You open the box it opens very slowly The way everything looks very clean and Polished and they have one of the World's most recognizable Brands and They have one of the most reputable Brands as well people absolutely love Apple people tattoo the Apple logo on Their bodies I personally know two People with the old-fashioned rainbow Apple logo tattooed on their arm and let Me just say guys if you have a company Out there and you get to the point where People are tattooing that logo on their Body then you are doing a very good job As far as brand recognition goes as I Said in the Coca-Cola analysis I would Say it's between Apple and Coca-Cola as To who has the stronger brand but There's no doubt in my mind that Apple Has one of the strongest and world's Most recognized Brands and they have a Very high reputation for that brand as Well they're known for having quality They're known for having Cutting Edge Technology and beautiful design and user Interface with these devices that is What apple is most well known for now Another Pro for Apple is the fact that They do have Diversified revenue streams However later on we're going to talk
About how most of their revenue comes From one Revenue stream alone and that Is kind of an issue for me as far as Looking at Apple stock but as far as the Revenue goes let's go ahead and break Down these numbers so first of all Apple Breaks down their Three core products as Far as the iPhone the iPad and the Mac Then they have other products which Includes the Apple TV the Apple watch This also includes beats a lot of people Do not realize this but Apple actually Owns Beats the maker of the headphones And other audio equipment and then this Includes the iPod any accessories Related to their devices and most Recently the new home pod that Apple has Released and then finally they have Their services Revenue which is going to Be their digital content their Apple Care and also their Apple pay service Their payment service but now I'm going To identify one of my main problems with Apple stock and it is the fact that it's Going to be a con we talk about later on But this is the best time to talk about It but they are very heavily reliant on Sales of the iPhone that is the big Winner for Apple so this is the Breakdown for quarter one of 2018 as far As the percentage of Revenue iPhone Accounted for 70 percent of total Revenue in that quarter and that is a Problem for me the fact that they are so
Heavily reliant on just one product Services came in at second with nine Percent of total revenue Max sales were Eight percent of total revenue iPad Sales were seven percent and then their Other services were six percent the Other problem I have for apple is as far As their key product lines go they have The iPhone the iPad and the mac and all Three of these products have been out For many years now if not decades uh Talking more about the Mac the iPhone And the iPad are newer devices but they Don't really have a fourth big key Product and I would like to see apple Eventually have another key product I Mean they do have the Apple watch they Do have the iPod they have other smaller Accessories the home pod but these are Not big sellers for Apple not anywhere Near like the sales and revenue we're Seeing coming from the iPhone it would Be better to see them having Revenue Diversified across many different Product segments and not have 70 percent Of their income coming from one product Line now back to the pros for Apple Stock we do have Apple pay that is a Very interesting service apple is Offering getting into the digital Payment space things are moving to a More digital oriented way and so this is A logical move for Apple personally I've Never used Apple pay but pretty much
Everywhere I go now I can see on the Card reader that they are accepting Apple pay as a payment another Pro for Apple something that I am a big fan of Is the fact that they have apple carplay Which is something that is very Beneficial to people who drive a car That is newer that has this Functionality so my car does allow you To have apple carplay it lets you Control your phone right from the touch Screen panel and it is a very very nice Feature and again it has all the nice Elements that traditionally you would Have on your smartphone so that is a big Big plus for Apple I do know that Android has their own comparable type Service but that is a nice service apple Is offering and some Vehicles out there Exclusively offer apple carplay and so That is going to drive more people into Buying Apple products because they want To have that seamless connectivity from Their phone to their touchscreen panel On their car and they may not have that Functionality available through Android Now another Pro for Apple again comes Down to the fact that they have a very Strong brand is the fact that Apple Products are a household name I can Guarantee you you cannot find anyone Living at least in the United States That's never heard of an Apple product We have all been using these products
For decades now I can remember when my Sister got her first iPod and it was a Very thick one the old classics and I've Had many different iPods the iPod touch The Nano everyone has used Apple Products and everyone is familiar with These products and they are household Names and they are a essential part of Our everyday lives another Pro for Apple Is the fact that they have recurring Sales for their accessories and they Also have a unique way of selling people Things that you didn't know you needed Now yes I'm picking on the fact that They removed the headphone Jacks from The new models of the iPhones and that Causes you to have to buy that new Adapter and maybe it was the transition From the initial cable for charging to That lightning cable I'm sure they have A reason for doing that for some Technical reason but really all that Causes you to do is go out there and buy New accessories for your Apple devices So they do have a lot of recurring sales For their Apple products which is Definitely a plus and then another Pro For Apple is that they have a cult-like Following for their products and for Their name it is something that no other Company has this out there I don't know Of another company that has a following Like apple does where people will Literally line up outside of the stores
Days before just to get their hands on The new Apple products and it's just Something people associate with status People look at the Apple products and They say okay this elevates my status This is something I've talked about Before in the past but when your company Or your product is associated with Status and people see you with that Product and they say oh wow this this Person is of high status that is a big Plus for this company it's kind of like How you see people who I don't know if It's like this anymore but I know when I Was a kid anyone I knew who drove a Cadillac was somebody of status they had The nice car and I was like okay this Must be a a very important person you See the same kind of thing happening With these Apple products where if You're hiring somebody to work for you And they're a graphic designer and they Show up with a Dell laptop you're going To say that's kind of weird I would Expect them to be using the top of the Line the Apple products but then again If they showed up with the the Apple MacBook Pro and their iPhone you'd say Okay these guys are using the best tools For the job but the only reason we think Of it that way is because we associate Apple products with status and that is Something that other companies really do Not have I know Dell certainly does not
Have that but that is something very Unique to Apple and that is a big plus For them is as far as graphic design Goes and creative work they really are The industry standard and their actual Products and devices are associated with Status and professionalism the other two Pros here as far as them being the World's most valuable company and having A low p e ratio are things we've talked About already and we're going to talk More about that price to earnings ratio Later on in this video when we cover the Fundamentals for Apple stock and then The final Pro I have for this company is The fact that the interconnectivity of These devices drives loyalty it's the Fact that you can start a document on Your Mac and then pick it back up on Your iPhone and all the different Devices the interconnectivity is going To drive loyalty across different Devices that is one of my favorite Parts About using Apple products is the fact That I can start working on some kind of Document or write down in my notes on my Phone and then I just have to go on to My Mac computer and it's automatically Updated over there so as a result if you Have a Mac you probably have an iPhone And maybe you also have the Apple watch Too if that's something that is Appealing to you it makes for very loyal Customers across different product
Segments and now we're going to move on To the cons of Apple stock and first of All we have to talk about the iPhone 10. So we all know that the iPhone 10 was a Pie near as far as the price of this Actual phone personally I picked on this Phone in one of my recent videos talking About investing a thousand dollars in The iPhone 10 versus a thousand dollars In the stock market I would never in my Right mind buy an iPhone 10 for a Thousand dollars and a lot of people I Think share the same mindset as I do Because the iPhone 10 sales are not what They are expected to be now Apple lumps All the iPhone sales together so we Don't know whether or not the sales of The iPhones are from the 10 the eight or Prior models so they are reporting Record high revenue and earnings per Share as of quarter one of 2018 we're Going to go over that but they are not Showing us how many of the actual iPhone 10s they have sold but one way we may be Able to determine this is by looking at The actual OLED screens and that is Something that Samsung actually Manufactures for Apple so initial Production targets for these screens was Set to 45 to 50 million for quarter one Of 2018 but they significantly cut Production down to just 20 million so What we are seeing here is the actual Product section of the screens of the
IPhone 10 were cut as much as 60 percent And that could only mean that the sales Were also lower than expected as well my Second con for Apple stock again ties in With the iPhone 10 and that is the law Of diminishing returns this is something That apple is up against and what this Basically means is that the Apple Products the actual iPhones themselves Are only going to get so much better With time if you look at the difference Between earlier models as far as the Functionality and features there was Night and day difference between these Models but the technology for the Apple Products has come so far that the prior Models are still fully functional and Offer great functionality for people and The actual incentive to upgrade is less And less each year because of the fact That they can only do so much they can Only push the envelope so much with These products as far as where we are at Today with the technology sure we can Offer better screens we can offer Brighter screens they can offer a flat Screen without a home button but is that Really worth the one thousand dollar Investment in the new iPhone and and That is something that apple is up Against the law of diminishing returns Where things are not going to be Improving as much as they were Previously another con for apple is that
The Microsoft Surface is actually a very Competitive device to the iPad I've Personally put my hands on one and I Prefer the Microsoft Surface to the iPad Myself now I don't have either one I Work on a computer that's just what Works for me but I have a lot of friends Of mine that use the Microsoft Surface So Microsoft is proving to be a Significant competitor for Apple in Terms of the tablets where the Microsoft Surface is really a brilliant device and It's very competitive with what Apple Has to offer with that iPad and then the Final con one we already discussed Looking at 2018 quarter one Revenue Numbers was the fact that apple is Heavily reliant on the iPhone in my Opinion those are numbers that frighten Me especially looking at what appears to Be weak demand for the iPhone 10 if 70 Percent of their revenue is coming from This one Revenue stream and again that Law of diminishing returns gives people Less of an incentive to upgrade what's Going to happen if we see weaker and Weaker iPhone sales going forward are People going to be running out the door And lining up in front of the stores to Upgrade or are they going to be holding On to their iPhones for a longer period Of time so moving on now let's go ahead And talk about the barriers to entry or The moat for apple and what protects
This company from the competition number One has to be the brand and the customer Loyalty the customer loyalty to Apple Products is one that no other company Out there can match and as we've already Said they have one of the world's Strongest Brands and you may even argue That they have the world's strongest Brand number two is the high cost of Entry first of all we have to consider The actual product research and Development costs it is very expensive To be researching and developing any Kind of Technology products second of All consider their marketing and Distribution cost the actual cost Associated with establishing a name for Yourself like apple has and then the Actual cost of Distributing these Products across different stores and Different online shopping Avenues the Third barrier to entry for apple is a Fact that they're one of these fabulous Companies or a company that actually Designs the products and then outsources Manufacturing to other countries so if You were going to try to compete with Apple and you were going to make Apple Products you would have to spend a lot Of money on research and development You'd have to spend a lot of money Finding distribution channels and Establishing a name for yourself but Then you would also have to Outsource
Your Manufacturing in order to be price Competitive with what apple is offering Apple designs their products in California and they manufacture them Pretty much everywhere else outside of The United States these are not jobs That people typically want they're very Dirty factory jobs and they send them Overseas a lot of people have problems With that we're not going to get into That in this video as far as ethical Problems with apple and the actual Resources being used but anyways just Understand that if you wanted to compete With apple you would have to adopt the Same fabulous manufacturing processes And you would have to be Outsourcing Your manufacturing to be price Competitive number four for apple is Their patents and Technologies as a Technology company they have a lot of Patents and protection in that realm and Number five is again the economies of Scale we talked about this with Amazon But because apple is so large they're Able to order so many iPhones and so Many iPads from these manufacturers that They are able to be very price Competitive and if you're going to be Starting off making your own type of Phone who would not be ordering Anywheres near the volume that apple is And as a result it would be more Expensive for you to be purchasing those
Units so apple is able to compete on Price due to the volume they are Ordering and the volume they are Producing and Fifth and finally as far As barriers go I am including the Interconnectivity of their devices that Is the fact that Apple has their Mac Computers they have their apple watches They have their iPhones and they all Connect to each other so even if you Were going out there starting your own Cell phone company and you were going to Make a new smartphone you would not have That Advantage under your belt of having Interconnectivity among devices unless This was a company that already had Different product lines as well like Apple does anyways guys that wraps up The beginning of this analysis of Apple Stock now we're going to go over and Talk about the fundamentals of Apple Okay so now we are going to look at some Of the fundamentals of Apple stock Starting off by looking at the assets so What we are seeing here is that total Assets have grown every single year at An average rate of 17.6 percent per year Since 2014 and total assets grew 21.6 Percent from quarter to of 2017 to Quarter one of 2018. now cash in cash Equivalence is steady over the last Three years showing consistency and cash In cash equivalence grew 35.5 percent From quarter four of 2017 to quarter one
Of 2018. now do keep in mind that Quarter one of 2018 is actually Reporting the income in revenue from the Fourth quarter of 2017 and that is Always going to be the best quarter for Apple due to the holiday sales and the Holiday shopping but seeing growth of Cash and cash equivalents of 35.5 Percent is a definite plus so what we Can gather from looking at this is that Despite the size of Apple they are still Showing consistent double-digit growth Of assets and they are sitting on a lot Of cash moving on now let's take a look At the liabilities for Apple so we see That total liabilities have grown every Single year at an average rate of 26.6 Percent per year since 2014 so what we Can gather from that is that total Liabilities are growing significantly Faster than total assets now total Liabilities also grew 33 percent from Quarter to of 2017 to quarter one of 2018 so we can see that over the last Four quarters total liabilities grew Significantly faster than total assets Now as far as the coverage of short-term Debt goes we see that current assets Have adequate coverage of current Liabilities in quarter one of 2018 this Was 1.24 to 1. typically what I'm Looking to find is 1.5 to 1 or a two to One is fantastic but most investors Would be okay with a 1.24 to 1 coverage
Ratio on current liabilities now also What is important to note here looking At liabilities is that long-term debt Has increased significantly since 2014 But slowed down in the last four Quarters so most of the debt growth for Apple was in current liabilities or Short-term debt growing at an astounding Rate of 57.9 percent from quarter to of 2017 to quarter one of 2018. now for Comparison's sake current assets grew Just 41 in the same time frame so what We can gather from this overall is that Debt growth is outpacing asset growth Which is not something investors are Typically looking to see moving on now We're going to look at the total revenue Gross profits and cash flow from Operations for Apple so net cash flow From operations is down over the last Three years meaning they are generating Less cash from their continuing Operations now it is important to note That net cash flow from operations Increased significantly from quarter Four up 2017 to quarter one of 2018 Again due to the holiday spending but Despite the increase in net income from 2016 to 2017 net cash flow from Operations declined so Apple appears to Be shifting from growth to consistency And consistency is something typical of An income investment so overall what we Are seeing here is Apple is truly
Shifting away from being an aggressive Growth stock to more of a conservative Income stock and again just to show this Consistency total revenue and gross Profit for 2017 is close to the 2015 Figures just slightly under showing no Significant growth here at all now we Are going to look at stockholders Equity As well as a number of different Financial ratios so first of all Stockholders Equity has grown every Single year at an average rate of just 6.3 percent per year since 2014 and if I'm looking at a growth stock I'm Typically looking for a double-digit Percentage growth in stockholders Equity Year over year now from quarter to of 2017 to quarter one of 2018 stockholders Equity grew just 4.5 percent so the slow Growth of stockholders Equity shows that Apple is becoming more of an income Investment just another indicator of That now looking at the current ratio And what the current ratio shows us is That debt coverage like we talked about Earlier current ratio is higher now Which shows better coverage of debt than In 2014 and 2015. in 2014 it was just 108 or 1.08 to 1 coverage and in 2015 it Was just 111 or 1.1121 coverage and now In 2017 it was a 1.28 to 1 or 128 Coverage now looking at gross margin Gross margin is very steady and near 40 Percent is great for a company the size
Of apple and operating margin of up 25 Percent is a plus as well so what we can See over the last four years here Looking at the profitability ratios for Apple is that they are very consistent We see gross margin is consistent profit Margin is consistent and operating Margin is relatively consistent as well And from the current ratio we can gather That they are sitting on more cash now Or short-term assets and they have Better coverage of their debt now as far As the stock performance goes it has Been a relatively good stock to invest In over the last year however Apple Stock has been a bumpy ride for Investors over the last year as you can See there are a number of different Hills and Valleys going on there so Apple went into a steep sell-off early On in 2018 due to a broad Market Correction and as you can see when we Pulled this data they have just about Recovered from that correction now over The last year apple is up 27.9 percent Compared to a 15.3 percent return from The S P 500 so Apple has significantly Outperformed the overall Market in the Last year and over the last five years Apple stock is up 184 percent compared To a 79.5 percent return from the S P 500 which is very impressive as well now We are going to talk about a new index Called fang plus I'm going to show you
Guys exactly what this is on the next Slide but this is basically a number of Different large Tech growth stocks and I Wanted to compare the return of Apple to The return of this index since Inception So since Inception Fang plus has Returned 31 percent while Apple returned Just 14 percent so Apple has actually Underperformed this new Fang plus large Cap growth stock index now while apple Is a great investment for a blend of Growth and income because as we said They do pay a dividend and they have a Consistent history now of growing that Dividend it might not be suitable for an Aggressive growth Investment Portfolio And that is due to that shift from Growth to income and I think if you are Looking for an aggressive growth Investment there are better Fang plus Options out there and I'm going to show You guys those in just a second here now As far as that price to earnings ratio Goes apple has a PE of just 17 meaning They are being priced more like an Income stock than a growth stock and Apple is cheap compared to an average S P 500 price to earnings ratio of 25.5 so This is more details on that Fang plus Index the New York Stock Exchange bang Plus index includes 10 highly liquid Stocks that represent the top innovators Across today's Tech and internet slash Media companies the index's underlying
Composition is equally weighted across All stocks providing a unique Performance Benchmark that allows for a More value-driven approach to investing While the performance of indices Weighted by market capitalization can be Dominated by a few of the largest stocks And apple being the largest cap stock They are one of them and equal weighting Allows for a more Diversified and Represented portfolio New York Stock Exchange Bank Plus is one of the most Highly correlated indices to technology And related stocks and as we can see Here these are the 10 companies on this Index we have Facebook we have apple Amazon Netflix and Google that makes up The Fang the f-a-a-n-g and also added Here are Alibaba Baidu Nvidia Tesla and Twitter so this is a good way to compare Apple's performance to the overall Growth of the tech industry and there Also are some internet and media Companies in there as well particularly Looking at Twitter and Google but if you Are looking for a more aggressive large Cap growth stock and you're looking for More excitement than you're seeing with Apple stock you might want to consider Looking at some of these other options Here we've already talked about Amazon Stock and stock radar but we can Definitely talk about some of these Other stocks here as well it if you guys
Are interested all you have to do is Submit them for a vote over on the Private Facebook group and then finally Let's wrap up with some key financial Notes for Apple so quarter one of 2018 Revenue and earnings per share hit an All-time high and that was definitely The main talking point of that earnings Report so we saw a quarterly Revenue was 13 higher than quarter one of 2017 that Quarter one year prior and quarterly Earnings per share was 16 higher than Quarter one of 2017. an international Sales accounted for 65 percent of total Revenue which is a plus because apple is Again a stock that gives you Global Exposure to different markets however Let's look at the more disappointing Side of this report we saw that unit Sales of the iPhone decreased one Percent year over year unit sales of the IPad increased just one percent year Over year and unit sales of Mac Decreased five percent year over year so What we can gather from this is that Revenue growth was a result of a more Expensive iPhone the iPhone 10 not more Unit sales anyways guys that is going to Wrap up our analysis of Apple stock I Hope you guys enjoyed this video and I Will see you in the next one
