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Apple (NASDAQ:AAPL) stock may be underperforming the S&P 500 this year — down 2% versus a 12% gain for the index — but it’s hardly in trouble. It’s still up 122% over five years. And it’s only around 7% off an all-time high, despite all the uncertainty around tariffs.
This is testament to the company’s extremely high quality. So should I add Apple stock to my portfolio? Here are my thoughts.
Reasons to invest
There are many reasons why I would consider Apple as an investment. The most obvious is that I’m very familiar with its products and services, and I can see first-hand how sticky the ecosystem is.
For example, I have long had my iPhone and the switching costs seem enormous to me. Every couple of years I’ll upgrade my phone but stay with Apple.
Of course, the switch to a rival phone maker may be not be as painful and problematic as I imagine. But the thought of having to redo all my passwords and/or losing information just doesn’t seem worth the risk, especially when I love the product anyway.
I also have AirPods and a subscription with Apple Music. And rumour has it that the company is working on a set of smart glasses that will rival Meta‘s popular AI-powered Ray-Bans.
I love the idea of seeing a map projected onto the ground through the glasses — no more looking down at my phone and nearly wandering into traffic! So I may consider a pair when they come out, as I imagine they’ll pair seamlessly with my phone.
Beyond this brand and product affinity, the company‘s incredibly profitable. Last year, it reported a net profit of almost $100bn.
Finally, Apple also has tremendous leadership in Tim Cook. Indeed, it’s been nearly 30 years since it had a CEO other than Steve Jobs or Cook! I find this level of long-term stewardship and continuity very attractive.
By contrast, a revolving door in the C-suite is always a red flag for me.
Reasons to be cautious
One thing that has made me a bit cautious about Apple in the recent past is its lack of innovation. There hasn’t been a new product that has moved the needle for some time.
That said, evolution rather than revolution is not necessarily a bad thing. Investors were impressed with the company’s latest line-up of products, including the new extra-thin iPhone Air phone.
But there’s no disguising the fact that the company’s high growth days are behind it. Wall Street expects just 5%-6% revenue growth moving forward, which doesn’t seem attractive when the price-to-sales ratio is already a sizeable 8.9.
It’s a similar story with the bottom line. The stock’s trading at 36 times earnings, despite just 8%-10% earnings growth pencilled in. And there’s a risk that tariffs could hurt profits.
Put simply, Apple appears to be priced like a growth stock when it arguably isn’t anymore. That’s not to say it shouldn’t carry a premium, because I think it should as one of the world’s best brands and tech companies.
But the current valuation looks a bit pricey relative to the growth, in my opinion. The dividend yield is also minimal at 0.43%.
Weighing things up, I reckon there are better opportunities out there for my portfolio today.
