Apple Stock Continues to Pivot from Growth Story to Defensive Play

Much like its FAANG peers, Apple (AAPL) stock saw a tremendous and unexpected boost in 2020, due to the COVID-19 outbreak. As the stock is trading sideways so far in 2021, what’s next for the technology giant’s shares?

First off, we cannot count on a repeat of last year’s stunning stock market performance. Future returns from here are more than likely to be modest. Given its massive size, both in terms of market capitalization ($2.22 trillion) and annual revenue ($325.4 billion), it’s going to be tough for Apple to continue growing at an above-average clip.

This may make AAPL unappealing to growth stock investors. How about for investors looking for lower-risk, more stable long-term holdings? Apple continues to morph into such a play. Between its growing dividend, blue chip underlying business, and reasonable valuation, shares could provide solid returns over a long time frame. (See Apple Stock Chart on TipRanks)

Just keep in mind that, for now, shares may hold steady (around $130 per share) as the market weighs the tech sector’s post-pandemic prospects, as well as the recent rise in inflation.

AAPL Stock and Slowing Growth

Pandemic tailwinds, coupled with last fall’s release of the iPhone 12, are helping to make this current fiscal year (ending September 2021) a banner one for Apple.

Analyst consensus calls for 29% revenue growth this fiscal year. Earnings? Projections call for a 57.25% increase from FY2020. The anticipation of this elevated growth helped shares more than double, from $60 per share, to as much as $144.63 per share. Now, with estimated growth in the next fiscal year (ending September 2022) much more modest (3.92% revenue growth, 2.7% earnings growth), investors have less reason to bid up shares.

Sure, there have been some positive developments as of late. Apple’s keynote address at the Worldwide Developers Conference helped to bolster confidence that, despite its mammoth size, growth could carry on in the coming years.

Apple’s faster growing segments, like wearables (watches) and services (such as the app store, and its increasing move into streaming) could help drive results that exceed the above-mentioned projections. However, until investors see this play out in its financials, it’s going to be hard for shares to move much higher from here. That being said, there’s no reason to believe that “the party’s over” for AAPL stock.

Apple’s Strengths as a Defensive Stock

Apple may not be set to repeat its FY2021 success in FY2022. Analyst estimates for the upcoming fiscal year may look anemic compared to the company’s results over the past four quarters.

This may make this stock a less appealing opportunity for investors interested in high-growth high-flyers. At the same time, for investors looking for a stable long-term holding, this may be a great opportunity. Why is that? Namely, Apple continues to morph into a defensive stock. That is, a stock that delivers stable earnings, and pays out a consistent dividend, no matter the direction of the stock market (or the overall economy).

Given its current yield (0.66%), admittedly it’s too early to call this an income play. At the same time, factoring in its current low payout ratio (around 18%), there’s plenty of room for this dividend to grow in the coming years.

As for valuation? Trading for around 24.8x forward earnings, its current multiple may not be “cheap,” per se. Yet in today’s still near-zero interest rate environment, it’s more than reasonable, considering the high-quality nature of its underlying business. Also, its forward multiple is in line with the valuations of other FAANG components, such as Alphabet (GOOGL) and Facebook (FB).

What Analysts are Saying About AAPL Stock

According to TipRanks, AAPL stock has a consensus rating of Moderate Buy. Out of 27 analyst ratings, 20 rate it a Buy, 5 analysts rate it a Hold, and 2 analysts rate it a Sell.

As for price targets, the average Apple analyst price target is $157.92 per share, implying around 18.64% in upside from today’s prices. Analyst price targets range from a low of $90 per share, to a high of $185 per share.

Bottom Line: Shares Will Likely Continue to Morph from Growth Story to Defensive Play

Apple shares may not have room to deliver triple-digit percentage returns over the next year. In fact, the stock could continue to tread water in the months ahead.

That is not only due to its decelerating rate of growth. Investors continue to weigh whether high inflation is here to stay, and whether central banks like the Federal Reserve will more rapidly raise rates to reign it in.

Yet, even as the near-term may stay choppy, AAPL stock, in its pivot from growth story to defensive play, still has the potential to deliver solid returns for long-term investors.

Disclosure: Thomas Niel held no position in any of the stocks mentioned in this article at the time of publication.

Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.