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Cramer's Investing Club Stock Profile: Why we own Apple and don't trade it

Published Tue, Jan 18 202212:48 AM EST

Zev Fima @zevfima

Members should be familiar with our view of Apple by now: Own it, don't trade it. Our reason for this is predicated on several key factors. Services The services business has grown into a highly profitable and resilient revenue stream (70% gross margin versus products at 32% gross margin) that has resulted in a robust ecosystem with high "switching costs" for users. Wall Street rewards recurring revenues and moats; the greater the share of services and the deeper the ecosystem, the greater the valuation support. Balance sheet Apple maintains one of the strongest financial profiles on the planet, a AAA credit rating from Moody's. Moreover, in the fiscal year 2021, Apple generated $94.68 billion in net income and $104.04 billion in operating cash flow. Back out capital expenditures and free cash flow comes in at $92.95 billion. So, not only is Apple reporting GAAP earnings (none of that adjusted stuff) but it is nearly entirely backed by cold hard cash. Capital returns Apple's strong cash flow profile brings us to our third reason to own it long-term, management maintains a "net cash neutral" stance over time. That means if cash doesn't go toward growth investments, it ultimately makes its way back to shareholders via dividends or buybacks. In the case of buybacks, earnings per share grows even faster than net income because Apple is constantly pulling shares out of the market. This rewards long-term investors with an increasing share of profits over time. Innovation Some claim Apple lacks in