Apple's back at $100 a share which, as usual, brings out voices of those expressing concerns about the viability of Apple as a growth-focused company. Here's why I believe those concerns are overblown and why I believe Apple remains a quality growth name for portfolio strategies (not a value trap).
There are seven reasons why Apple is still a worthwhile portfolio holding:
1. Massive cash flow. Every quarter this company generates billions of dollars of excess cash flow that continues to accumulate adding to the core valuation of the stock. When you look at the overall market value of Apple, a significant percentage of its market cap is held in cash and this is not a company burning through cash.
2. IPhone sales. Yes, despite concerns expressed by other analysts and prognosticators, we still believe iPhone sales will drive significant profits for Apple. Much is going to be made about the difficulty with previous comps for the iPhone and I think that's probably likely true in the short-term. I would expect the numbers over the course of the next several quarters to be lukewarm at best. Still, because carriers will no longer be subsidizing iPhone sales, you'll see a shorter upgrade cycle which should put new products in consumers hands on a more regular basis. More consumers are going to buy new phones every year.
3. Margins of 40 percent. Forty percent is an incredible margin in a competitive business like hardware technology. Apple is incredibly profitable.
4. Product launches are just beginning in new categories. I'll admit, I really don't get the Apple watch but perhaps the next version will be more useful. In a meeting today, I discussed this product with a sophisticated investor who likewise did not see the utility or need for an Apple Watch. This is one product category that absolutely needs to be updated and made more relevant. I imagine those who bought Apple watches, despite reportedly less than perfect satisfaction levels, will be first in line to move into the new version. I'm more optimistic about Apple TV and the ecosystem that is developing around that product. And despite the slow pace of payments through Apple Pay, this new business creates an additional flow of revenue for the company. The bottom line is Apple still has products that have yet to move into product-upgrade cycles. When this occurs, upgrades will add revenue streams.
5. Apple is incubating ideas like Google. Alphabet is designed as a company to take advantage of potential new opportunities and seed long-term projects. The rumored Apple electric car (whether it's an actual car or the brains and ecosystem within the car) is the type of project that Apple currently is developing that has long-range potential possibilities. If rumors are to be believed, as well as my sources, there are plenty of new ideas in the pipeline.
6. Discount to Nasdaq valuation. When comparing Apple to the overall Nasdaq index, the valuation is attractive on a historical basis. The company continues to make massive profits and STILL trades at a historical discount.
7. Sentiment is awful. Yes, sentiment could get worse but it's pretty grim right now which is astounding for a company that's going to report billions of dollars of free cash flow in the next earnings report. Negative sentiment is often a buy signal and the core fundamentals of the company are still intact.
Lets face it, Apple is a cult stock and people often own it because they know it has done well for them in the past. Investors expecting that type of performance to be replicated in the future are going to be disappointed. But perhaps it makes sense to think about Apple from a different perspective.
Look at the company as a reasonable growth opportunity with a dividend. It's not going to be a high flier name that doubles.
Resist the temptation to compare Apple to flashy tech names. Apple is a more mature growth company and your expectations should be focused on returns based on that category of stock. When you start comparing Apple to the overall equity market and not to high-flying peers, it begins to look more reasonable.
There are varying price targets for the stock between $120 and $170 on Apple. A target somewhere in the neighborhood of $140 makes sense over the course of the next 18 months. Not a home run — but not a bad possible return.
Allocation of your portfolio requires that you be disciplined and not become too overweight in any one position. If you're not in Apple, take a look as this name as it is trading at a reasonable discount right now. If you own this name, consider adding to your position (unless it is over weighted already in your portfolio).
Bottom line: Apple is still a "buy" and more so than six months ago — despite the negative headlines. It is my view that investors will be rewarded by acting against negative sentiment over the course of the next 24 months by owning this name.
Commentary by Michael A. Yoshikami, the CEO and founder of Destination Wealth Management in Walnut Creek, California. He is also a CNBC contributor. Follow DWM on Twitter @DestinationWM.
Disclosure: Michael Yoshikami does not own shares of Apple and has no other business relationship with the companies mentioned. But Destination Wealth Management may buy shares for clients.
For the latest commentary on markets in the U.S. and around the world, follow @CNBCopinion on Twitter.
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