Goldman Sachs says customers should buy Apple (AAPL) for the first time in years, making a compelling argument for the iPhone maker that aligns closely with the Club’s long-term vision. Apple’s service revenue growth in recent years has fueled our enduring investment mantra: own Apple, don’t trade it. “We have a Buy rating on AAPL because we believe the market’s focus on slower product revenue growth masks the strength of the Apple ecosystem and associated sustainability and visibility,” wrote Goldman’s new Apple analyst Michael Ng. Sunday in a note. The analyst has a 12-month price target of $199 per share, up nearly 32% from Friday’s closing price of $151.03. It is the first time since 2017 that Goldman has a buy rating on Apple, Bloomberg reports. It follows an extended period of neutral designations and a 12-month sell rating — from April 2020 to April 2021 — under former analyst Rod Hall, who began neutral coverage of Apple in a February 6, 2018 note. Apple stock rose 270, 5% between Feb. 6, 2018 and Friday’s close, much faster than the S&P 500’s roughly 50% rise over that period. The index’s technology hardware and equipment industry group, which includes Apple, climbed a more robust 177.2% over the same roughly five-year period. During the 12 months in which Goldman sold Apple stock, the stock rose about 89%. AAPL .SPX mountain 2018-02-05 Apple’s performance (AAPL) since Feb. 1, 2018 In Goldman’s note Sunday, the company struck an optimistic tone about Apple’s service revenues, enabled by the company’s installed base of 1.1 billion active iPhone users. In total, Apple has more than 2 billion active devices, the company said in February, up from 1.8 billion in January 2022. should more than compensate.” such as longer appliance replacement cycles, Goldman wrote. The company expects the majority of Apple’s gross profit growth to come from services, reaching 40% of gross profit in fiscal 2027. That compares to 33% in fiscal 2022, which ended in September, and just 20% in fiscal 2017. Goldman argued the company’s rising services revenues justify the stock’s high valuation — about 24 times expected earnings — compared to its three-year pre-Covid average of 16 times expected earnings. The Club agrees, as we’ve long applauded Apple’s service push, as that kind of revenue is more stable and predictable than lumpy hardware sales. Investors value predictability of earnings and are generally willing to pay a premium for it. The club’s point of view We welcome Goldman Sachs to our side of the Apple debate – we currently have a 1 stock rating, which means we would buy more at current levels. We particularly appreciate the analyst’s belief in the growth of the company’s services, including the App Store and Apple Music. It has been an important part of our thesis for years and is ultimately rooted in the strength of Apple’s brand ecosystem and customer loyalty. As that base of active device users grows, so does the number of people who will pay for additional Apple services. All things considered, which is why Jim Cramer has spent years preaching that Apple is a stock to own for the long haul, not a stock to trade between iPhone cycles or dump when the near-term economic outlook is murky become. Sure, some times are better than others for the stock price, but even in those periods of struggle, like in 2022 when the stock fell 26.8%, Apple pays a steady dividend and buys back billions of shares, increasing our ownership percentage of the company at no extra cost to us. Our belief that Apple is a best-of-breed company with a strong competitive edge has enabled us to remain invested and not be scared out of the stock by analyst downgrades or negative headlines such as iPhone production challenges in the fall. We pay close attention to developments that could shake our long-term vision. So far we haven’t seen any. Apple remains a stock to own, not to trade. (Jim Cramer’s Charitable Trust is long AAPL. See here for a full list of the shares.) As a subscriber to the CNBC Investing Club with Jim Cramer, you receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charity’s portfolio. If Jim has talked about a stock on CNBC TV, he will wait 72 hours after the trade alert is issued before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY, TOGETHER WITH OUR DISCLAIMER. NO FIDUCIAL OBLIGATION OR DUTY EXISTS OR IS CREATED BY YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
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Goldman Sachs tells customers to buy Apple (AAPL) for the first time in years, making a compelling case for the iPhone maker closely aligned with the Club’s long-term vision. Apple’s service revenue growth in recent years has fueled our enduring investment mantra: own Apple, don’t trade it.