One of the most important strategies for successful investing is building a well-diversified, balanced portfolio of 25 to 30 stocks and holding them for the long term. But every investor has to start somewhere, and it’s not necessarily practical to allocate funds to so many stocks at once.
If I were starting over today, I would look for a company with a strong growth record, the ability to weather an economic storm, and a history of taking care of its shareholders. Therefore I think Apple (AAPL -2.03%) is a great choice.
The story in brief
Apple is among the most successful consumer goods companies in the world thanks to a series of groundbreaking products that have become household names. Far from being a one-trick pony, Apple continues to innovate with its existing products while also looking for the “next big thing.” The company is fine the most successful smartphone manufacturer on the market, but complements this success with a wide range of consumer products and a growing battery of services.
Often imitated but never replicated, Apple commands an impressive market share with many of its products. This has resulted in a fortress-like balance sheet while providing generous returns for shareholders. The company’s products are among the most well-known and popular in the world, which should help the company continue to generate above-market returns for years to come.
Based on the legendary iPhone
The 800-pound gorilla in the room is the iPhone. While it wasn’t Apple’s first hugely successful product (I’m looking at you iPod), it was the one that catapulted Apple to its current fame and fortune.
The iPhone has the largest market share of any smartphone in the US and is #2 globally (it occasionally takes the top spot). There are currently 1 billion active iPhones in the world, and that number keeps growing.
Apple recently launched the new iPhone 14, which has all the makings of another incredibly successful device. Wedbush analyst Daniel Ives points to long and growing waits for shipping, with some models having delivery dates of four to six weeks. This indicates strong demand for the latest version of the company’s flagship phone. Additionally, Ives estimates that about 240 million iPhone users have not upgraded their phones in the last 3 1/2 years, leading to robust pent-up demand even in the face of economic headwinds.
It’s worth noting that the iPhone accounts for the lion’s share of Apple’s revenue, generating nearly 54% of revenue for the first nine months of fiscal 2022 (ending June 25). This could pose a risk if users ever fall in love with the iPhone.
More than just the iPhone
Beyond the iPhone, Apple has a growing list of products and services that generate nearly half of the company’s revenue. Mac, Apple’s computer that started it all, has a strong and loyal fan base that accounts for 15% of all PC shipments in the US. The iPad, the company’s notebook, is the market leader and commands 31% of the global tablet market.
Likewise, the Apple Watch dominates the market with a 36% share, selling more than three times as many smartwatches as its closest competitor. The tech titan is also the clear leader in the headphone market, with almost 50% of consumers in the US using Apple’s AirPods or Beats headphones.
It all started with the App Store and iTunes, but Apple’s service offering is extensive and growing. The list includes award-winning programming on Apple TV+, high-definition audio on Apple Music, and secure payments with Apple Wallet. There’s also mobile games on Apple Arcade, news on Apple News+, workouts on Apple Fitness+, digital storage on iCloud and more. Services have been one of Apple’s fastest-growing segments over the past few years, rising nearly 18% year over year in the first nine months of fiscal 2022.
This large and growing list of industry-leading products and services provides a level of assurance that Apple will continue to deliver stable results for years to come.
Strong shareholder returns
Apple tops the list of shareholder-friendly companies, benefiting investors in a number of ways.
First, it began paying a dividend again in 2012 and has since built an excellent track record. What started as a meager payout of split-adjusted $0.095 has grown by 143% in just 10 years. While the yield is still a relatively low 0.6%, that’s a function of Apple’s soaring share price, which has risen more than 500% over the past decade — even after the impact of the recent bear market. Additionally, the company only uses 15% of its profits to fund the payout, so there’s a lot more where that came from.
Then there’s the generous share buyback program. The company has literally repurchased shares over the past decade, retiring nearly 39% of its outstanding shares. That means every shareholder gets a growing slice of the apple pie.
A port in a storm
Finally, Apple’s consistently strong results and fortress-like balance sheet offer investors a safe haven in an economic storm. For the first nine months of fiscal 2022, Apple’s revenue rose 8% year over year to $304 billion, while earnings per share rose 10% from $4.86. This is a remarkable achievement, especially considering the size of the company and the mounting economic headwinds it has faced.
But don’t worry: even if macroeconomic conditions worsen, Apple has the resources to weather the storm. The company has about $60 billion in net cash on its balance sheet, which would weather it well through tough times.
For these reasons and more, Apple is the stock I would buy if I could only buy one.