This is an exciting time for investors looking to buy on the downside, but getting that strategy wrong could hurt your portfolio. Apple (NASDAQ:AAPL) remains wildly popular, but you may get better results from an ETF that tracks Nasdaqlike Invesco QQQ Trust (NASDAQ:QQQ), As always, the most appropriate choice depends on individual factors, so consider those before making a choice.
Apple is tech royalty
Apple is the largest publicly traded company in the world by market cap. The company has delivered consistent revenue growth over the past 20 years. The slowdown and competitive conditions have brought many obstacles along the way, but the overall trend has been sharply upwards due to a range of popular consumer devices and related software.
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Apple isn’t reaching the same growth rate it delivered on a smaller scale, but its most recent results were still impressive. The company posted 9% sales growth in the first quarter of 2022, and generated $28 billion in operating cash flow during the quarter. It’s really impressive to have a huge global business with formidable competitors. With an annual R&D budget of approximately $25 million, Apple is clearly committed to maintaining its place as a global consumer tech leader.
Apple could be a lucrative game for investors who want to capitalize on it The rise of virtual and augmented reality, The company doesn’t have any devices in the market right now, but there are rumors that it will be launching the headset in the not-too-distant future. Apple’s potential foray into VR will be aided by its powerful presence in the content, consumer software and mobile device markets.
Investors can buy the stock at a forward P/E ratio of 24, which is quite reasonable at the current growth rate. It’s not the cheapest stock in the world, but investors who like the company should be comfortable with this valuation for long-term gains.
The case for owning the index
There is a classic trade-off between owning an entire index rather than individual stocks. The best possible return comes from hitting it big with a stock. Owning an index means that the losers are pulling the winners below average.
On the other hand, owning a diversified bundle means you’ll never experience the devastation of a stock that falls short of expectations. There are plenty of historical examples of this in action. Since the market has historically delivered solid long-term returns, most investors are in a better position. using index funds to limit the risks.
It is unlikely that for all the reasons covered above, Apple will crash and burn out anytime soon. It is not entirely improbable that its financial consequences could be dire. The iPhone accounts for more than half of the company’s sales, which opens up the risk. If consumer tastes change or if competitors release a better product, declining sales for that dominant product can hit the bottom line.
Even if Apple retains market share, growth may stall. Some investors are concerned about smartphone saturation. More than 83% of people in the world own a smartphone, so there are not many untapped corners of the market left. Of course, Apple is committed to positioning itself in new product and software markets, so its fortunes won’t always be tied to the iPhone.
Ultimately, the best arguments in favor of indices focus on their similarities rather than differences. Apple is highly correlated with the Nasdaq. In fact, Apple makes up about 13% of the Invesco QQQ trust. Many of Apple’s tech partners share its key growth catalysts, so most of the time, the Nasdaq will go as soon as Apple is gone. There’s a chance the Cupertino tech giant breaks above the index, but that’s going to at least partially drag the Nasdaq along with it.
Both Apple and the Nasdaq as a whole are probably winning investments for investors today. By owning the index, you can capture most of Apple’s upsides while greatly reducing risk. You’ll also get introduced to a handful of exciting, successful tech leaders. Most investors should prioritize that stability.
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Ryan Downey Have no position in any of the stocks mentioned. Apple positions at The Motley Fool and recommends it. The Motley Fool recommends the following options: long March 2023 $120 call on Apple and short March 2023 $130 call on Apple. The Motley Fool has one Disclosure Policy,