The 2016 Bullish and Bearish Case for Apple

A lot of things happened in 2015 for Apple. The launch of the Apple Watch was more of a niche product, and the new refreshes for the iPad have yet to materially work into big gains in sales. Still, the iPhone 6 carryover and the iPhone 6s refresh have been huge for Apple. Streaming music has yet to materialize into a massive boost, and the verdict is out for Apple TV.

Reports also have suggested that Apple is tempering its iPhone sales expectations and decreasing production. Is the market is already thoroughly saturated with the iPhone 6 and 6s versions? Or are consumers just waiting for the next stage in the iPhone evolution?

The Apple of 2016 is much different from even the Apple of 2013. It has a forward price-to-earnings (P/E) ratio of only about 10. Apple’s cash hoard is now over $200 billion, and Apple is now generating more business outside of the United States than inside of it, with some 62% of revenues at the end of fiscal 2015 coming from international sales. China now accounts for more of Apple’s revenues than Europe. Apple’s sales are expected to be north of $250 billion in fiscal year 2017, assuming the analysts are correct.

What lies ahead for Apple is still up in the air. In some ways there are more questions than answers. Investors are still debating how to value the greatest growth story of this generation. Will Apple really get into cars? Will it revolutionize how consumers watch television? What other product launches will Apple have in the years ahead? How deep will Apple’s penetration into the business and enterprise market go?

Apple is in the midst of a massive share buyback. The company also has lots of room for dividend growth ahead. Its shareholder capital return plan sent some $17 billion back to holders in its fourth quarter of 2015 alone.

It might seem like a safe bet for analysts to continue to trim their price targets on Apple, considering how the company ended 2015 with a drop of roughly 10% over the month of December alone. It is just hard to conceive of a Dow stock adding another 40% of its market value, with an admission that some Dow stocks have had returns of that magnitude in prior years. However, Apple has been known to surprise, and the fiscal second quarter from last year was heralded as the greatest quarter the company had ever posted.

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