Technology

Why Apple Stock Is Having a V-Shaped Recovery

Chris Lange

Published: May 20, 2020 1:32 pm

Apple Inc. (NASDAQ: AAPL) has been a market leader for years now, even through the coronavirus crash. Apple stock has led the way to recovery for both the Dow and the S&P 500.

Over the past month, this tech giant has been a top performer among the Dow 30 stocks, with its stock price up over 13%. Apple’s trillion-dollar market cap has also been a tremendous contributing factor to the S&P 500’s recovery. Apple shares are up nearly 71% from this time last year.

Apple’s performance has been built on its strong portfolio of products, including the Apple Watch, Apple TV+, and iPhone SE. Also Apple’s up-and-coming services business has picked up the slack as consumers have been buying fewer iPhones during the pandemic. Apple Music and the App Store, among other services, contributed a whopping $13.3 billion in revenue in the most recent quarter.

CEO Tim Cook noted that Apple’s services subscriber base topped 515 million in its fiscal second quarter. At the same time, Apple’s installed base–every iPhone, iPad, or Mac, in consumer hands–came in at 1.5 billion. For reference, there are nearly 8 billion people on the planet.

So with the economy beginning to reopen and Apple’s business firing on all cylinders, what’s in store for the company going forward?

Reopening

Apple gave a progress report about its retail locations on Sunday. So far the iPhone giant has reopened more than 100 of its stores globally, with 25 U.S. locations to follow this week as restrictions are lifted across the country.

Ultimately, these reopenings depend more on the local coronavirus counts and trends. Also Apple is taking into account safety and regulatory measures, meaning social distancing, occupancy limits, customer temperature checks, and mask requirements for staff and customers.

This is a step in the right direction, but the impact may not be felt for a while. Many analysts are writing off the calendar second quarter of 2020, if not the full year. Problems related to the coronavirus will persist, but Apple is putting its best foot forward and investors are optimistic.

Buyback

There are many factors contributing to what has made Apple stock a buy during the pandemic. Apple’s business model is incredible and its products practically sell themselves, but investors have also been looking at Apple’s balance sheet.

Based on Apple’s balance sheet alone, the company holds a tremendous advantage over practically every other company on the planet. With more investors looking for safety in balance sheets, Apple is offering a fortress.

At the end of the most recent quarter, Apple’s current assets included $40 billion in cash and cash equivalents and $53.9 billion in marketable securities. Among noncurrent assets, it had $98.8 billion in marketable securities.

It’s worth pointing out here that Apple is quickly creating one of the largest cash holdings among all U.S. firms. The company generated $33.5 billion in cash from its operations in the last quarter alone. So how does Apple plan to use all this cash?

Apple is paying out dividends and buying back a significant amount of stock. Apple announced a share buyback plan for $50 billion in its most recent report. Although it might not seem like $50 billion is that much money for a company worth $1.38 trillion, it dwarfs the individual market caps of more than three-quarters of the S&P 500.

Also worth noting is that this buyback will only boost Apple’s stock further by taking shares off the market. Apple has a big war chest and is in effect bidding its own stock up.

With Apple getting back to business and the reopening of its retail locations, it’s likely that the company will only extend its lead from here. It has a better financial position than some small countries, a product that sells, and a booming services business. Recovering from this pandemic seems only too easy for Apple.