Apple stock closed up 3.1% on Tuesday as other stocks tumbled on concerns of the new omicron Covid variant, showing investors see the company as a safe haven during market uncertainty.
Other large-cap tech stocks like Google, Amazon, Meta (formerly Facebook) and Microsoft closed down for the day amid a broader market selloff. The Dow Jones Industrial Average dropped 651 points, the tech-heavy Nasdaq composite fell 1.6% and the S&P 500 was down about 1.9% on Tuesday after Federal Reserve Chairman Jerome Powell said the Fed will discuss speeding up the bond-buying taper during its December meeting.
Needham analyst Laura Martin told CNBC that investors turned to Apple on Tuesday because the company has prodigious cash flow, allowing it to endure any slowdowns in the economy and take advantage of falling prices.
“There’s a flight to quality with companies that you know will weather the storm, not go bankrupt, not have financial distress,” Martin said, noting that other large-cap tech stocks aren’t down as much as smaller firms.
Martin added Apple is positioned to introduce new products to power new growth, including a headset.
“The biggest criticism of Apple for the last five years is no new products. When you look at the product pipeline, lots of excitement there, especially in the press today about how they’re going to introduce augmented reality glasses at the next WWDC in June,” Martin said.
Martin said there are indications that Apple’s current products, especially its iPhone Pro models, are selling well, potentially leading to a big December quarter for the company. Apple said in October it expected record revenue in its fiscal first quarter, over last year’s $111.4 billion in sales, despite supply constraints.
“Lots of really good numbers coming out of retail about how the products are selling. Tablets, especially the high-end iPhones, all of which says they’re going to have high margins and high revenue for the fourth quarter of this year,” Martin said.
Apple uses its cash flow not only to invest in new products but to return capital to shareholders through dividends and buybacks, the latter of which can help keep the stock price stable. And Bernstein analyst Toni Sacconaghi said in a note to investors earlier this month that he expects Apple to continue repurchasing shares over the next five years.
“Our analysis suggests that Apple is likely to be able to continue repurchasing ~ 3-4% of its shares per year until the end of 2026 while growing its dividend per share by 10% annually without taking on net debt on its balance sheet,” Sacconaghi said in a Nov. 17 note to investors.
Shares of Apple are up about 25% for the year.