Today after the market close, Apple (AAPL) announced solid earnings—the company reported $35.3 billion in revenue, which was about flat from $35 billion in the year-ago quarter and modestly higher than expectations for $35.01 billion in revenues.
More importantly, the company reported quarterly net profit of $6.9 billion, for earnings of $7.47 per share. Analysts were expecting $7.32 earnings per share, so the company posted a 2.0% earnings surprise.
Clearly, Apple is still a money-making machine, but its growth has slowed. And while the stock was long a Wall Street darling, following a series of disappointing earnings reports it has largely lost its shine after its margins have come under compression.
So here’s the thing with Apple: It’s a dividend stock now. It’s just not a growth stock, for now anyway. So while I’ve sold the stock in our Blue Chip Growth newsletter and locked in triple-digit gains, I do still like the stock for its dividend.
And Apple will be back. There are rumblings that they’ll have a cheap phone for the masses to get more market share, and then of course they still have their premium phones. But the problem is that they’ve lost market share to Samsung’s big phones. In fact, I’d throw my hat into the ring and recommend that Apple needs to make an even bigger phone than they have now, because if you’ve seen some of these phones out there they’re getting huge—in fact, in my opinion they could take the iPad Mini and make it a phone!
But one thing that Apple has going for them—and they’ll continue to do so—is that it has the same operating system between its iPhone, iPad and laptops, so people are very comfortable with their products. So I think that they’ll be fine long-term, but they do need to come out with another hit to get their margins up.
In the meantime, the finance guys are running this business, borrowing in the bond market very cheap to return more than $100 billion to shareholders via buybacks and dividends by 2015.
So if you’re holding Apple, it’s a solid dividend stock that is giving you 3% yield. But it’s not a growth stock anymore—the stock had a stunning run from 2009 to 2012, but the cellphone and tablet market are starting to get saturated and Apple is still clearly figuring out how to deal with the shift.
But the good news is that while I rate the stock as a sell right now based on its lackluster buying pressure, I am confident that the company will eventually be back. Just not yet.