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It’s a question that goes to the heart of investor indecision. Is this the time to look for safety in numbers or are you considering what is arguably the highest quality stock on the market?
Either choice would be fine, for the record. But Apple (NASDAQ: AAPL) It’s a better choice than a broad fund for most investors right now, even when that find includes all 30 blue chips found within the Dow Jones Industrial Average. Although the iPhone is losing strength as the company’s breadwinner, more than a few blue chip supporters are bumping into a headwind at the same time Apple is poised to catch at least one favorable wind.
Image source: Getty Images.
Apple’s catalyst
Apple’s upcoming favorable wind is 5G connectivity. While most wireless carriers rolled out 5G coverage last year, this is the year these long-awaited wireless broadband speeds finally became widely available to consumers. AT&T has launched hundreds of new 5G markets since March. T-Mobile added 5G service in 121 cities in October alone. Verizon he’s also in a fight, announcing last month that his 5G service is now available to over 200 million people in 1,800 U.S. cities.
Much of this explosion is missing, however, smartphones capable of 5G connections.
That’s not to say they’re not out there. The Galaxy S20 Plus by Samsung it was well received, and Google’s Pixel 5 garnered some respect even if reviewers hesitate at its price.
If there is only one 5G phone that consumers have resisted, however, it is the iPhone 12 series unveiled last month. As Counterpoint Research Director Jeff Fieldhack commented in October: “There is significant pent-up demand from iOS subscribers who are putting off updates until these 5G devices are launched.”
The iPhone 12 was available for pre-order earlier this month and deliveries began just a few days ago.
Of course, these next-generation iPhones are a means to an increasingly important end for Apple. These are the sales of digital apps and services. While services accounted for only 22% of Apple’s revenue in the last quarter (versus 40% for the iPhone), service sales increased 16% year-over-year. Product margins are also significantly higher on digital goods than on hardware. Strong demand for the iPhone 12 should lead to equally stable growth in service revenues and overall earnings, as the former powers the latter. Namely, the faster wireless broadband speeds make a smartphone much more functional.
This bullish dynamic could persist for a long, long time.
Too many drag
Of course, this doesn’t mean that diversification isn’t important anymore. It’s important. Being a collection of 30 manually selected stocks, however, the Dow Jones Industrial Average is not as diverse as, for example, the S&P 500. And more than a few of its old-school members are facing challenges that could be related to size and age.
To take Cisco (NASDAQ: CSCO), for example. Once the king of networking hardware, he has struggled to maintain his lead now that smaller rivals like Juniper is Arista Networks they figured out how to compete with the behemoth. Cisco shares have fallen lower since mid-2019 to near their March low at the end of last month, reflecting this challenge. They are still down 33% from their 2019 high and continue to decline.
International Business Machines (NYSE: IBM) is another Dow name that has proved problematic. It ultimately got a multi-year streak of quarterly revenue declines in 2018, but only temporarily. The tech giant is still unable to meaningfully connect the industry’s most important opportunities right now, such as cloud computing and cybersecurity, despite investments in those fronts, as it continues to languish with its legacy activities such as mainframe computers. It is planning a break to focus better on its individual product lines, but with no guidance offered in the last quarter report (and none on the horizon), the shares continue their march towards multi-year low territory.
Walgreens Boots Alliance (NASDAQ: WBA), Intel (NASDAQ: INTC), is Boeing (NYSE: BA) there are three other Dow names struggling for reasons beyond mere market volatility. All three face company-specific obstacles such as consumerism crimped by COVID-19, the inability to make competitive technological advancements, and the consequences of a flawed aircraft design, respectively. None of these obstacles will be eliminated quickly or easily.
These weak components will not be enough to keep the Dow Jones Industrial Average from recording solid gains over time. Right now, however, they are quite an obstacle for the index to favor the risk / return proposition offered by a name like Apple.
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