Better buy: Apple or all Nasdaq stocks? | Smart Change: Personal Finances

(Ryan Downie)

It’s an exciting time for investors looking to buy on the downside, but the wrong strategy could hurt your portfolio. Apple (NASDAQ:AAPL) still very popular, but you might get better results with an ETF that tracks the Nasdaq, like the Invesco QQQ Trust (NASDAQ: QQQ). As always, the most suitable option depends on personal factors, so consider them before making a choice.

Apple is tech royalty

Apple is the largest publicly traded company in the world, based on market capitalization. The company has seen steady revenue growth over the past 20 years. There have been a number of bumps along the way due to recessions and competitive conditions, but the overall trend has been sharply upward due to a series of popular consumer devices and associated software.

People also read…

AAPL Revenue Data (TTM) by YCharts

Apple isn’t achieving quite the same growth rates as on a smaller scale, but its most recent results are still impressive. The company posted 9% sales growth in the first quarter of 2022 and generated $28 billion in operating cash flow in the quarter. That’s really impressive for a huge global company with formidable competitors. With an annual R&D budget of approximately $25 million, Apple is clearly committed to maintaining its position as the world’s leading consumer technology company.

Apple could be a compelling game for investors looking to capitalize on the rise of virtual and augmented reality. The company doesn’t have a device in the market at the moment, but there are rumors that it will release a headset in the not-too-distant future. Apple’s potential entry into virtual reality would be facilitated by its powerful presence in the content, consumer software and mobile device markets.

Image source: Getty Images.

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.

Arguments in favor of the property of the index

There is a classic trade-off between owning an entire index rather than an individual stock. The best possible returns come from hitting it big with a single stock. Having an index means that the losers bring the winners back to the mean.

On the other hand, owning a diverse set means that you will never experience the disaster of a title falling short of expectations. There are many historical examples of this in action. Since the market has always produced strong long-term returns, most investors would be better off using index funds to limit risk.

Apple is unlikely to crash and burn anytime soon, for all the reasons discussed above. It is not totally implausible that its financial results could deteriorate. The iPhone represents more than half of the company’s sales, which opens up risks. If consumer tastes change or competitors release a premium product, declining sales of that flagship product could affect the bottom line.

Even if Apple retains its market share, growth could stagnate. Some investors are worried about smartphone saturation. Over 83% of people in the world have a smartphone, so there aren’t many untapped corners of the market left. Of course, Apple is committed to establishing itself in new product and software markets, so its fortunes won’t always be tied to the iPhone.

Ultimately, the best argument for the index focuses on their similarities rather than their differences. Apple is strongly correlated with the Nasdaq. In fact, Apple represents about 13% of the Invesco QQQ Trust. Many of Apple’s tech peers share its key growth catalysts, so most of the time the Nasdaq will go like Apple. There’s a chance the Cupertino tech giant will break above the index, but it will at least partially drag the Nasdaq with it.

AAPL, QQQ Total Return Level Data by YCharts

Apple and the entire Nasdaq are likely gaining investment for investors today. By owning the index, you can capture most of Apple’s benefits while significantly reducing risk. You will also be exposed to a handful of exciting and successful technology leaders. Most investors should prioritize this stability.

Find out why Apple is one of the top 10 stocks to buy now

Our award-winning team of analysts have spent over a decade beating the market. After all, the newsletter they’ve been putting out for over a decade, Motley Fool Equity Advisortripled the market.*

They just revealed their top ten picks of stocks investors can buy right now. Apple is on the list – but there are nine others you might be overlooking.

Click here to access the full list!

* Portfolio Advisor Returns as of July 27, 2022

Ryan Downie has no position in the stocks mentioned. The Motley Fool holds positions and recommends Apple. The Motley Fool recommends the following options: $120 long calls in March 2023 on Apple and short calls $130 in March 2023 on Apple. The Motley Fool has a disclosure policy.

Leave a Comment

Your email address will not be published.