3 Reasons to Buy the Apple (NASDAQ: AAPL) Pullback

Nothing lasts forever – even the Apple NASDAQ: AAPL rally. After making a V-shaped recovery, shares spent much of June, July and August on the all-time high list. But September has been a different story, with shares dipping nearly 24% from peak to trough. AAPL has since clawed back some of those losses, but remains well below the levels seen at the beginning of the month.

Apple is still trading at 35.1x forward earnings and its market cap sits just shy of $2 trillion. The days of 20%+ revenue growth are likely over for Apple, but Apple can grow well beyond its current valuation if it can run off 3-5+ years of low-double-digit revenue growth.

Here are three reasons why that will happen:

1. iPhone 12 Will Drive Upgrades

The iPhone 12 will likely be launched sometime in October. While every smartphone is better than the last, the rate of improvement has trended downwards over the years – this is natural and to be expected.

But this iPhone will be the first to include the highly anticipated 5G. The iPhone 11 was not that much better than its predecessor and it still sold beyond expectations. The iPhone 12, which has mixed sales expectations, may shock a lot of people.

The rumored iPhone mini could be a winner if it comes to fruition. That version could be priced lower than the standard version, attracting a large number of customers that are struggling with increasing smartphone prices. A cheaper mini could particularly appeal to Chinese consumers, who showed a preference for the lower-priced iPhone 11s.

Zooming out and looking at the big picture, Apple’s iPhone business has performed well considering the circumstances. The company shipped 15 million iPhones in the US in Q2, increasing its market share from 40.8% in Q2 2019 to 47.1%. Apple did get a growing piece of a shrinking pie, however, with overall smartphone shipments dropping 5% yoy to 31.9 million units.

All that said, the smartphone market is already getting stronger, so there is no reason for long-term concern on that front. At the same time, Apple’s market share gains should stick.

2. Wearables Have Huge Growth Potential in Age of COVID

Peloton NASDAQ: PTON has been one of the biggest pandemic winners as thousands of people have bought the $2,000+ bikes to help stay in shape during the pandemic (and beyond). In addition to the start-up costs, a Peloton customer pays $39 a month for an all-access membership. A lot of customers think it’s worth it, but countless others can’t afford it or don’t want to pony up for it.

This is a large addressable market for Apple’s coming Fitness+ subscription offering. It will cost $9.99 a month or $79.99 a year, and if someone buys a new Apple Watch, they get three months free.

Of course, it won’t compare to a Peloton, but it will be much cheaper – both at first and on an ongoing basis.

Perhaps most importantly, it will get even more people into the Apple ecosystem, enabling Apple to cross-sell and up-sell them.

3. Apple TV+ is One More Way to Get People into the Ecosystem

The Apple Ecosystem…

Once people starting buying Apple products, they don’t stop. Of course, Apple is aware of this and does everything it can to get people into the ecosystem – and that includes Apple TV+.

Apple TV+ is only $4.99 a month, but if a customer purchases a new iPhone, iPad, Mac, or Apple TV box, they get a year of Apple TV+ for free.

Granted, Apple TV+ isn’t going to overtake Netflix NASDAQ: NFLX.

But the company’s deep pockets will enable it to invest in quality original content and maybe peel off some subscribers from its rivals. And again, at the very least it will help to get more people into the ecosystem.

In September, Apple talked about bringing Apple TV+, Apple Fitness+ and other subscriptions together to offer service bundles. Apple One is priced at $14.95 a month and a premium bundle is $29.95 a month. Apple’s service businesses have seen impressive growth, and the bundles could further increase it.

The Final Word

When you take a holistic view of Apple, it’s clear that the company has several growth drivers that are intertwined. If one slows down, multiple others are likely to more than pick up the slack. That’s the beauty of Apple and the reason to take this pullback as a buying opportunity.