Pros and Cons to Buying Apple (AAPL) Stock

Apple (Nasdaq: AAPL) stock started 2019 on a bad note, falling as much as 10 percent to a 52-week low after CEO Tim Cook shocked Wall Street with a troublesome update: the iPhone-maker's holiday quarter was bad. Really bad.

Previously, Apple itself had guided for between $89 billion and $93 billion in sales for the fiscal 2019 first quarter. But then Cook warned the world that those numbers would be far too optimistic. AAPL now expects something more like $84 billion in revenue for the holiday quarter.

[See: 10 of the Best Stocks to Buy for 2019.]

In the wake of all this hoopla surrounding one of the tech world's most steadfast juggernauts, what are everyday investors to do? Should you buy or sell AAPL stock?

Here's a look at three of the biggest pros and cons for Apple shares.

Pros to Buying Apple Stock

In the early days of 2019, here are the three main positives for shareholders in the Cupertino, California-based smartphone giant.

Cash for buybacks, dividend and R&D. The value of cold, hard cash is difficult to overstate sometimes, and in recent years Apple's enormous cash hoard has reached downright legendary levels. At the end of September, AAPL had $237.1 billion in cash and investments -- money it routinely returns to shareholders through stock buybacks and dividends.

Currently, Apple's 1.9 percent dividend yield is modest but still nothing to scoff at, especially since the company has set the precedent of raising its payout annually since first instituting the quarterly stipend at the behest of shareholders in 2012. Since then, Apple's quarterly dividend has nearly doubled, from a split-adjusted 38 cents a share to 73 cents a share today. Another increase is expected in May.

Another reason CEOs must envy Tim Cook is that he can easily influence earnings per share numbers through massive stock buybacks, a strategy Cook wasn't afraid to use in the holiday quarter. After buying back about 70 million shares of AAPL stock during the period, Apple actually expects record quarterly EPS, even though analysts expect profits themselves to marginally decline.

Services segment growth. As you might expect, Cook made a point to emphasize the quarter's silver linings in his Jan. 2 letter to shareholders. One of those was the Services segment, which posted record quarterly revenue of $10.8 billion and grew in every geographic area.

Services, which includes many of Apple's hit software offerings like iTunes and the App Store, is a higher-margin part of Apple's business, meaning more profits drop down from the top- to the bottom-line.

Cook says AAPL is still on track to double Services revenue between 2016 and 2020, and Apple's installed base of active devices -- which Services revenue is a function of -- actually reached an all-time high, growing by more than 100 million units in a year.

Value. The last of the three major Apple stock pros is the company's valuation itself.

Wall Street is notorious for overreacting to both good and bad news in the short term, causing larger-than-necessary price swings. That appears to be happening to AAPL stock in January 2019, as the day after Cook's letter to shareholders saw the company lose as much as $75 billion in market value in a matter of hours.

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And in just three months, the company plunged from a valuation of more than $1.1 trillion to less than $700 billion. Trading at 12 times earnings, 9.8 times forward earnings and a price-earnings-growth ratio of 0.91, Apple looks like a steal for any long-term investor willing to wait things out.

Cons to Buying Apple Stock

Pros aside, Cook's letter was unmistakably negative overall, and it highlights three glaring problems that shareholders have reason to be worried about.

Magnitude of holiday miss, negative momentum. The magnitude of Apple's revenue miss was simply stunning. By conducting supplier checks, monitoring shelves and using various other sneaky, clever methods, analysts had already begun souring on iPhone sales in the holiday quarter, warning they were prone to disappoint.

But even with the low bar established, AAPL stock still managed to disappoint, and in dramatic fashion. Eighty-four billion dollars is a far cry from a midpoint of $91.5 billion, especially when the company has a reputation for issuing conservative guidance.

Now for the momentum aspect: Apple stock was already in free fall before the Jan. 2 letter to shareholders, but the selling snowballed on Jan. 3, making it a dangerous play for any investor looking to make a quick buck off a rebound. With shares hitting 52-week lows, it's usually inadvisable to try to catch a falling knife.

China and diversification troubles. The most glaring problem area for AAPL stock highlighted in Tim Cook's letter was China: Cook said much of Apple's year-over-year revenue decline was due to disappointing sales of the iPhone, Mac and iPad in Greater China alone.

This highlights the ancient "live by the X, die by the X" conundrum. China was supposed to be Apple's savior, the catalyst for its next growth phase, the holy grail for a consumer tech company courting the world's (and China's, especially) emerging middle class.

With growth expected to come largely from one region, you might think of this as a geographical diversification problem, but a far bigger issue is Apple's product diversification problem.

While over the years Apple has successfully expanded into Europe and Asia, its crippling reliance on the iPhone for revenue has gone on entirely too long. Since first approaching 60 percent of overall sales nearly seven years ago, the iPhone today still accounts for about 60 percent of sales, and often more.

That was great when the iPhone was the fastest-selling product of all time, but with carriers like Verizon Communications ( VZ), AT&T ( T) and others slashing subsidies, competition from Samsung and countless other handset-makers, and a strong dollar hampering overseas sales, AAPL needs another trick up its sleeve, and fast.

It's another case of "live by the X, die by the X." What Apple needs is a "Y."

Questionable use of resources. When Steve Jobs returned to Apple in 1997, the company was within months of going bankrupt. Jobs' cold, brilliantly reasoned strategic decisions on how to allocate what little capital and resources the company had at its disposal resulted in a series of bet-the-company-type moves that successfully parlayed Apple's capital time and time again.

Cook's reputation as a supply chain guy, not a bold, visionary risk-taker like Jobs, has proven scarily accurate. And frankly, some might argue it's not what the company needs if it wants to thrive in the long term.

Jobs could do more for shareholders with $2.4 billion than Cook can with $240 billion. Under Cook's helm, Apple repurchased roughly 70 million shares in the holiday quarter. Already, that seems to have been a bad idea, with AAPL stock down 35 percent in the last three months. The buyback has likely already cost shareholders billions.

Of course, no company should be expected to perfectly time buybacks for the market bottom. But it does seem that Apple, in the name of conservatism and levelheadedness, is soberly returning capital to shareholders through buybacks and dividends while ignoring the path Jobs took to build this money machine. He did so by reinvesting profits in new products, rinsing and repeating.

Apple should be spending wildly trying to figure out its next blockbuster product to take pressure off the iPhone. Ten years after its debut, little progress has been made on this most important of fronts, while companies like Amazon.com ( AMZN) have poured every spare penny and more back into operations and research and development, resulting in a remarkably dynamic, diverse, growing and innovative business.

The Bottom Line on Apple Stock

Apple is a great company. It's one of the world's biggest cash cows, and even in an apocalyptic worst-case scenario, it's hard to see how AAPL stock could, say, go to zero -- at least anytime in the next 10 years. This company will be around for a long time, and this fact alone gives Apple shares value.

If longer-term Wall Street estimates are accurate, Apple shares actually look quite attractive at today's depressed levels. It wouldn't be surprising to see Apple itself step up its buyback program in 2019 or for Warren Buffett's Berkshire Hathaway ( BRK.A, BRK.B) to aggressively average down on its already large Apple position.

[See: 10 of the Best Dividend Stocks to Buy for 2019.]

That said, Apple's holiday quarter swoon underscores just how reliant AAPL stock is on a single product, and even a single region of the globe. The ebbs and flows of China are outside Apple's locus of control, and although every year the iPhone marginally improves, it doesn't seem like Apple takes seriously the very real risk of the iPhone's eventual obsolescence.

If Cook gets a grip and devotes more attention to a future Apple not reliant on the iPhone, Apple shares will become much more appealing for the long-term. In the short-to-medium-term, AAPL is poised to outperform, as the pendulum has likely swung too far to the cheap side. Bold, patient investors should consider buying soon, while more cautious investors may want to wait for more clarity from management or an end to the trade war with China.