Investors with a sweet tooth for Apple stock would know that the company has carved a sweet spot in the tech sector. The company is behind some of the most iconic and ubiquitous products of modern times. These include the iPhone, iPad, and Mac. Its stock has been a darling among investors for years and it can be a good investment for aspiring or beginning investors. Nevertheless, before taking a bite into that Apple, one should be aware of the benefits and drawbacks of investing in the stock of this tech giant.
Pros: Advantages of Apple Stock
Apple is one of the largest companies in the world. Its sheer size and remarkable accomplishments have made it one of the most ideal companies to invest in. A further look at the historical performance of its stock would reveal that it has remained resilient over the years. The following are the specific advantages of investing in Apple stock:
• Strong Brand and Reputation: Apple is a household name and it has one of the most recognizable brands in the world. Its strong brand has enabled it to market its products with minimal effort while also allowing it to set premium pricing despite the presence of alternative products from its competitors. Investing in this company means investing in its established reputation for producing and selling sought-after products.
• Favorable Financial Health: It is also one of the most valuable companies in the world with a market capitalization of trillions of dollars. Apple is essentially a large-cap stock. The company generates enough profits and has maintained sizeable cash reserves that have allowed it to pursue business expansion initiatives to include next-generation research and development and notable acquisitions.
• Demonstrated Track Record: Another advantage of investing in Apple is the availability of market information. It is a transparent company that publishes pertinent details as regards its operations, strategies, attainments, and finances. There is also an abundance of resources from third-party providers. These enable investors to conduct the proper due diligence needed to make informed investment decisions.
• Strong Historical Stock Growth: Apple stock was trading at around $7 per share in 2003 and it rose to around $20 per share in 2010. The stock price grew further with the release of the iPhone and the iPad. It also remained resilient overall despite the 2007-2008 Financial Crisis and the coronavirus pandemic beginning in 2020. The value of its stock has grown to more than 38 percent over the last two decades.
• Commitment Toward Innovation: Buying Apple stock also means investing in its capabilities to provide innovative and disruptive products in the future. The company has revolutionized digital music, has ushered in the era of smartphones, and has been making big bets on the future of computing. It has remained at the forefront of some of the most remarkable developments in the overall tech sector.
Cons: Disadvantages of Apple Stock
Building wealth and hedging against inflation are the main reasons for investing in stocks. However, considering the risks in the stock market, doing so also has disadvantages. Apple stock has the same general risks as other stocks. Its price can be volatile and there is no guarantee that it would perform well at all times. The following are the specific disadvantages:
• Threats from Competitors: The markets in which Apple operates experience a high level of threats from existing competitors and even new entrants that have the potential to introduce game-changing products. The pace at which tech evolves levels the playing field because anyone quick to introduce the most useful innovative product can outcompete established companies in the tech sector.
• Dependence on Few Products: Apple generates a substantial portion of its revenues from the sales of its iPhone products. These account for more than 50 percent of its total income. This means that a decline in the sales of the iPhone due to weakening demand and the emergence of alternative and substitute products would have a significant impact on the overall financial performance of the company.
• Risks in the Supply Chain: The company depends on outsourcing several raw materials and even manufacturing capabilities from third-party providers around the world. Supply chain disruptions would affect its production schedule and capabilities to innovate. These disruptions could come from widescale global conflicts, natural disasters such as a global pandemic, shortages in supplies, and even environmental backlash.
• Legal or Regulatory Risks: Another disadvantage of investing in Apple stock is that doing so is also akin to exposure to risks associated with regulation changes. The company markets its products in different countries. Each can have its respective regulations. The company has faced antitrust investigations and has been affected by changes in trade policies that affect its entire value chain.
• Expensive Stock Price: Remember that the stock price of this company has grown exponentially over the last 20 years. It is a large-cap stock with a solid brand and reputation. These translate to the fact that its stock price is more expensive than other tech companies. Buying a single Apple stock could equal two or more mid-cap stocks or stocks from other tech companies.
