Apple is a rare underperformer in the tech arena so far this year.
Apple (AAPL -2.78%) shareholders aren't having a magnificent 2024. The tech giant's stock is in negative territory, while most of its peers have rallied in the first quarter. Fellow "Magnificent Seven" stocks Microsoft (MSFT 0.17%) and Amazon (AMZN -0.86%) are up 23% and 14%, respectively, for context.
Investors aren't nearly as optimistic about Apple's short-term growth prospects as they are for these other tech businesses. That's partly because these companies are more exposed to the enterprise service software niche and less dependent on hardware sales. But Apple brings a lot to the table, including a massive installed base of users and one of the most valuable brands in the industry. These assets should allow it to recover its growth momentum, along with help from its push deeper into the services niche.
But does that mean Apple is a good buy for 2024 and beyond? The short answer is yes, but with some caveats. Let's take a closer look.
Getting back to growth
Like Microsoft and Amazon, Apple has seen a significant demand gap between its hardware and software services. Product sales -- anchored by massive franchises like the iPhone, Mac, and iPad -- were flat in the most recent quarter. The good news is Apple offset that sluggishness with better growth in the services segment, which is home to products like Apple's TV, music, and fitness services. Overall sales rose 2%, while Microsoft and Amazon each enjoyed double-digit gains.
Expectations are low for Apple's next few quarters as well. Most Wall Street pros are projecting about 1% higher sales in 2024 compared to 6% for Microsoft and 12% for Amazon. You've got a much better shot at faster growth with one of Apple's tech peers, in other words.
The reasons to buy
Apple can still generate excellent returns with just modest growth rates, though. Consider the most recent quarter as a prime example.
Sales inched higher by 2% in fiscal Q1, but thanks to rising profit margins and its extreme efficiency, Apple's earnings jumped 16% to notch a holiday-quarter record. The company also produced $40 billion of operating cash flow, up from $34 billion a year ago.
This success gave CEO Tim Cook and his team plenty of resources to pour into growth initiatives and direct cash returns. Apple gave shareholders $27 billion in Q1, mostly through stock buyback spending, as well as its modest dividend payment. In addition to the earnings growth, this cash haul should boost your overall returns while owning the stock.
Follow Apple's lead
Many investors will be tempted to follow Apple's lead in buying the stock at this discounted price. Shares are available at less than 7 times annual sales right now, down from more than 8 times sales earlier in the year. Microsoft stock costs 14 times revenue, by contrast, and Amazon is available at 3.4 times sales, its highest valuation to date in 2024.
If you're worried about slowing growth, then you could choose to watch Apple shares from the sidelines in favor of some more successful members of the Magnificent Seven. Yet this stock ought to appeal to investors seeking lower risk in this rallying market.
Apple's gushing cash flow, rising profit margins, and industry-leading brand strength all point to a rebound ahead at some point for the business (and the stock). Being willing to sit through some modest returns in the meantime should position you for long-term gains despite that volatility. It's hard to go wrong betting on Apple stock over a multiyear period, especially at today's discounted prices.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Demitri Kalogeropoulos has positions in Amazon and Apple. The Motley Fool has positions in and recommends Amazon, Apple, and Microsoft. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
