Analysis of my personal investment portfolio – Apple

My personal investment thesis is simple. Invest in high quality businesses, preferably through index funds, and let time do the heavy lifting. With the market volatility in December 2018 that’s exactly what I did. Let’s go through the highlights of a company in my personal investment portfolio named Apple.

Some background

As mentioned in another blog post, I sold off all of my stock positions in Q1 2018 and put the money in my mortgage savings account generating 4.3% per year, tax and risk free. With the financial markets at all-time highs that seemed the most sensible thing to do.

However, the main reason I sold all of my stocks was that I wanted to buy a rental property. But because of a lot of (emotional) buyers driving up the real estate prices, my financial models showed only red flags. Putting the money in my mortgage savings account was the best alternative.

With the stock market in December being the most volatile in years, it was time to buy some stocks again. The goal was to buy only about €1,000 worth of stocks. But with stocks going lower and lower throughout December I couldn’t resist buying more.

My investment portfolio

My investment portfolio comprises of the following stocks:

  • Apple (AAPL)
  • Berkshire Hathaway (BRK.B)
  • ING Groep N.V. (ING)
  • Brookfield Asset Management (BAM)

For the number of shares and value of the portfolio and individual stocks, I refer to my monthly FFP reports. Today I will take a closer look at Apple.

A closer look at Apple

Apple is an amazing company. Apple is one of the most recognizable brands in the world. The Apple brand alone has an astonishing value of about $183 billion.

The company is most known for the iPhone and MacBook. Being an Apple user myself, I find their products very intuitive with strong features and superb looks. This combination has propelled Apple to become the $700 billion company it is today.

Apple’s revenue drivers

According to Apple’s Q1 2019 results, their revenue comes from the following products and services:

Blog #7 Analysis of my personal investment portfolio - Apple revenue drivers

What is immediately noticeable is the decrease in iPhone revenue of about 15%. That’s a very large decrease and has not happened previously since the inception of the iPhone. That’s a key reason the stock has plummeted from their $230 highs to their $142 lows.

But everyone already knew iPhone sales would not grow indefinitely. The growth will slow down at some point. What I looked at was the increase of revenue in the Services and Wearables, Home and Accessories segments. That has increased with around 24%. That’s exactly the segment where the growth is.

Gross margins

Q1 2019 was also the first quarter in which Apple reported gross margin percentages of their services segment. The Services segment has a gross margin of 62.8% (!) compared to 34.3% of the Products segment. Obviously, I am more than happy that Apple has grown their Services segment with around 19% in one year. Keep it up!

Cashflow

Apple is an enormous cash cow. It generates around $26 billion in operating cash-flow every quarter. Almost $9 billion per month. $288 million per day. Who doesn’t want a piece of that business at a fair price?! Apple has a war chest of about $130 billion. Even though Apple rarely acquires companies, it surely has the means to do so!

The cash-flow enables Apple to pay-out a nice dividend. As Apple is generally considered a growth stock, the yield is fairly low at around 1.8%. But over the past 5 years the dividend has grown with about 10% per year. The yield is not that impressive compared to other Blue Chip companies, but it’s a nice steady flow of income with relatively low risk (the pay-out ratio is only about 23%).

Problems in China

Of course, I should not just skip the problems of Apple in China. Net sales decreased significantly with 27% and operating income has decreased with 23%. This has everything to do with the warpath on which the United States has embarked on. It is hurting business. But over time, being a long-term investor myself, this should all work out fairly well.

Should Apple be part of your portfolio?

Oviously, being an Apple investor myself, I am completely biased. But I think Apple could definitely have a place in an investment portfolio of someone seeking financial freedom. Many of you are already an Apple stockholder.

If you invest in the S&P 500, depending on the stock price, you invest about 3% in Apple. For many investors seeking diversification, an exposure of 3% to a single stock is more than enough. But personally, I don’t mind a larger exposure to Apple in my portfolio.

It is important to note that when you invest $50,000 in the S&P 500, it does not automatically mean you invest $100 in each of 500 companies included in the S&P 500 index. This results from a market capitalization weighted methodology that many of the S&P 500 trackers use.

This should be no problem as long as you are aware of this. An alternative is an equal-weight index fund. In another post I will look at the differences between the two.

Takeaways

  • Apple is a wonderful company generating enormous amounts of cash-flow.
  • Because of Apple’s growth potential, long-term investors should definitely take a look at Apple.
  • Investing in technology stocks comes at a risk. High volatility is almost certain.
  • Always do your due diligence before investing in any stock or index fund.
    What are your views on Apple? Are you a fan? An investor maybe?

What are your views on Apple? Are you a fan? An investor maybe?

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