Better Buy: Apple or Every Nasdaq Stock? | Smart Change: Personal Finance

(Ryan Downey)

It’s a fun time for investors looking to buy on the dip, but a mistake in this strategy could hurt your portfolio. apple (NASDAQ: AAPL) It’s still very popular, but you might get better results from the ETF that tracks the Nasdaq, like Invesco QQQ Trust (Nasdaq: QQQ). As always, the most appropriate option depends on personal factors, so think about them before making a decision.

Apple is a proprietary technology

Apple is the world’s largest publicly traded company, based on market capitalization. The company has achieved consistent 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 hardware and associated software.

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AAPL (TTM) Revenue Data by YCharts

Apple hasn’t reached the same growth rates as it did on a smaller scale, but its recent results have still been impressive. The company reported 9% sales growth in the first quarter of 2022, and generated $28 billion in operating cash flow during the quarter. This is really impressive for a huge global company with formidable competitors. With an annual research and development budget of approximately $25 million, Apple is clearly committed to maintaining its position as a global leader in consumer technology.

Apple could be a compelling game for investors who want to take advantage of the rise of virtual and augmented reality. The company does not have a device on the market at the moment, but there are rumors that it will be releasing a headset in the not too distant future. Apple’s potential entry into VR will be helped by its strong presence in the content, consumer software, and mobile devices markets.

Image source: Getty Images.

Investors can buy the stock with a forward P/E ratio of 24, which is very reasonable at the current growth rate. It’s not the cheapest stock in the world, but investors who love the company should be comfortable with this valuation for long-term gains.

Index ownership issue

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

On the other hand, having a diversified package means that you will never face the disaster of a stock that has not lived up to expectations. There are plenty of historical examples of this at work. Since the market has historically made strong long-term returns, most investors prefer to use index funds to reduce risk.

It’s unlikely that Apple will crash and burn anytime soon, for all the reasons listed above. It’s not entirely unreasonable for its financial results to deteriorate. The iPhone accounts for more than half of the company’s sales, which opens the door to risks. If consumer tastes change or if competitors release a premium product, the dwindling sales of that flagship product can come to the bottom line.

Even if Apple retains market share, growth may slow. Some investors are concerned about the saturation of the smartphone. More than 83% of people in the world own a smartphone, so there aren’t many untapped corners of the market left. Of course, Apple is committed to establishing itself in the markets for new products and software, so its fortunes won’t always be tied to the iPhone.

Ultimately, the best argument in favor of the index centers on their similarities rather than differences. Apple is closely related to the Nasdaq. In fact, Apple makes up about 13% of the Invesco QQQ Trust. Many of their tech peers share key growth catalysts, so most of the time, the Nasdaq will go as well as Apple. There is a possibility that the tech giant Cupertino will outperform the index, but it will at least partly pull the Nasdaq with it.

Total Return Level Data for AAPL and QQQ by YCharts

It is possible that both Apple and the entire Nasdaq will win investments for investors today. By owning the pointer, you can get most of the benefits of Apple while drastically reducing the risks. You’ll also get to know a handful of exciting and successful technology leaders. Most investors should prioritize this stability.

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Ryan Downey has no position in any of the listed stocks. Motley Fool has and recommends positions at Apple. Motley Fool recommends the following options: long calls in March 2023 worth $120 on Apple and short calls in March 2023 worth $130 on Apple. Motley Fool has a disclosure policy.

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