Worried About a Stock Market Sell-Off? Buy This "Magnificent Seven" Stock


Apple has what it takes to persevere through a stock market correction.

April has not been kind to the broader stock market this year, with the S&P 500 down 5.5% between April 1 and April 19. Granted, the index is still up on the year, but with many stocks still trading at high multiples, some investors may be concerned about further downward pressure.

If you’re worried about a stock market sell-off, you may not exactly be looking at what stocks to buy. After all, isn’t that counterintuitive?

However, stock market corrections, and especially bear markets, have historically been phenomenal buying opportunities for patient investors. Here’s why Apple (AAPL -0.35%) is an excellent blue chip stock to buy now, even if the market continues selling off.

A person wearing headphones smiles while typing on their phone and walking down a street.

Image source: Getty Images.

A not-so-magnificent year for Apple stock

Apple is part of the “Magnificent Seven,” a term coined by Bank of America analyst Michael Hartnett to describe Apple, Microsoft, Nvidia, Amazon, Alphabet, Meta Platforms, and Tesla.

While most of the Magnificent Seven (especially Nvidia and Meta) have done well so far this year, Apple is within just a couple of percentage points of its 52-week low and is down over 14% year to date. Apple has underperformed for a long period, especially relative to the rest of the tech sector.

Apple is the perfect value play

Apple’s underperformance hasn’t been ideal for investors, but it does look good if the broader market continues selling off.

During periods of market expansion, investors tend to be more forward-looking and reward companies with an attractive growth trajectory. But during a correction, investors can get defensive and look for companies that can put up solid earnings right now, pay dividends, and have a reasonable valuation.

Apple’s growth has slowed, and it has yet to make a splash in artificial intelligence (AI) — although future iPhones may increasingly rely on AI chips. But what Apple has going for it is a reasonable valuation — with a price-to-earnings ratio of 25.7 compared to 27 for the S&P 500.

The quality of Apple’s earnings is also relatively high. There’s no denying that Apple relies on healthy consumer spending for product upgrades and increased service sales. However, its business has a high floor in that economic growth could slow or there could even be a recession, and Apple would probably not face nearly as severe of a downturn in its performance as more cyclical companies like Nvidia or Tesla.

So it’s not just Apple’s valuation based on its trailing earnings that makes it a good value, but the nature of the business model and Apple’s ability to deliver results throughout the economic cycle.

Apple also has a massive capital return program. Over the past five fiscal years, it has spent a staggering $391.5 billion on buybacks and $72.5 billion on dividends.

Metric

Fiscal 2019

Fiscal 2020

Fiscal 2021

Fiscal 2022

Fiscal 2023

Stock Buybacks

$66.1 billion

$72.4 billion

$86 billion

$89.4 billion

$77.6 billion

Total Dividends Paid

$14.1 billion

$14.1 billion

$14.5 billion

$14.8 billion

$15 billion

Data Source: YCharts.

Apple’s buyback program provides a nice cushion if the stock falls. Apple has the cash to step in and buy its stock, thereby reducing the share count and giving existing shareholders greater ownership of the company.

The dividend is an additional incentive to hold the stock through volatile periods. Granted, it only yields 0.6%, but it’s still a massive capital commitment for Apple to its shareholders.

Apple is sitting on a stockpile of cash

Another attribute that gives Apple an extra layer of insulation from unforeseen challenges is its financial health.

AAPL Net Total Long Term Debt (Quarterly) Chart

AAPL Net Total Long Term Debt (Quarterly) data by YCharts

Apple doesn’t rely on leverage to operate its business. It also has a massive stash of cash, equivalents, and current and non-current marketable securities.

As of the first quarter of fiscal 2024, Apple’s trove of these assets was $172.6 billion, while its term debt was $106 billion. Therefore, Apple’s true “cash position” is even better than its leverage ratios would indicate.

Investing through periods of volatility

Apple has the brand, industry-leading position, valuation, capital return program, and balance sheet to provide the fundamentals needed to cushion the stock during a downturn. That’s not to say that Apple is impervious to downturns, but it does have more of a value bent than other Magnificent Seven stocks.

Now would be a good time to take a moment to make sure you are confident in your portfolio to endure volatility, as well as make a list of companies that you like and could confidently buy even when asset prices are falling all around you.

The ability to not just hold stocks but continue to put new capital into the market opens the door to compound wealth over time. Apple’s rock-solid fundamentals make it the perfect stock to buy now, especially if the market continues to sell off.

Bank of America is an advertising partner of The Ascent, a Motley Fool company. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Daniel Foelber has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Bank of America, Meta Platforms, Microsoft, Nvidia, and Tesla. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.



Source link

About The Author

Scroll to Top