Top Stock To Hold Forever

The electronics manufacturer generated an unprecedented $83 billion of revenue in the most recent quarter, with combined sales for the first nine months of the fiscal calendar amounting to $304 billion. That puts it almost $22 billion ahead of where it was this same time last year.

 

Considering that Apple only just turned in its best annual performance in 2021, the fact it could be about to surpass that feat so soon says something about how good the company really is.

And with an endorsement from Warren Buffett ringing in its ears, the firm has been bestowed with possibly the finest accolade that any business could hope to receive.

 

Indeed, the Oracle of Omaha is so enamored with the company that he’s made it the top holding in Berkshire Hathaway’s investment portfolio. In fact, he can’t stop lavishing praise on the firm, saying that Apple has crafted an “extraordinary consumer franchise” over the past few years.

 

Furthermore, Buffett also alluded to the stickiness of Apple’s ecosystem, a feature that ensures its loyal customers are mentally and psychologically “locked in” to the business over the long haul.

 

This ability to retain users and keep them coming back is the secret to Apple’s success.

 

But why does Apple exemplify this quality best? 

 

 

Apple is the most popular smartphone brand in the world. Its iPhone offering is used by 113 million people in the United States alone, while, at the same time, its 23.4% share of the global smartphone market is larger than any of its other handset manufacturing rivals.

 

What’s especially notable about the company is the almost fanatical loyalty of its customer base. In a recent survey by Consumer Intelligence Research Partners last year, it was found that 90% of all iPhone users remained loyal to the firm when choosing to buy their next smartphone.

 

Moreover, it appears that, for all intents and purposes, Apple is effectively a recession-proof business. Indeed, 2022 has been a difficult year for many companies, with rising interest rates and a cost of living crisis in most westernized countries.

 

And yet, Apple is thriving. While you might be forgiven for thinking that with disposable income in short supply, luxury items would be the first thing to go, that’s simply not the case with Apple.

 

The resilience of Apple’s sales this year suggests it shouldn’t even be included in the “consumer discretionary” category at all. A smartphone is a practical necessity these days. In fact, their use isn’t just for marginal activities like web browsing and taking selfies anymore; they’re increasingly used for accessing public transport, purchasing goods, gaining entry to restricted buildings and paying bills.

 

Which just adds to Apple’s importance to its customers.

 

However, it’s Apple’s stickiness that truly gives it an edge in the marketplace. The company is able to provide its customers with a frictionless user experience, keeping them attached to its own universe of applications and ecosystem of products.

 

Through this attachment, Apple can increase its feature adoption over the lifetime of its users. It can also recommend account expansion, such as upgrades to its iCloud+ storage plan, as well as up-sell on its existing product range to boot.

 

In fact, every time Apple brings out a new iPhone, that’s essentially chalked up as an up-sale too. And as we’ve seen, Apple users aren’t shy about buying the latest product put before them.

 

It’s all well and good having a sticky business. But why does that even matter?

 

Ultimately, the main reason why any company does anything is to drive its revenues and improve its bottom line.

 

Fortunately, stickiness achieves these ends in a myriad of different ways.

 

First off, product stickiness aids in customer retention, which means the lifetime value of a customer increases in proportion to the duration that they stay with a brand.

 

Additionally, it also reduces churn as well. This is a vital point as a company grows, as the absolute fraction of potential new customers in a market diminishes as a business expands. Therefore, keeping the customers a firm has already won becomes paramount to its success.

 

If you think all this is purely theoretical, a quick glance at Apple’s balance sheet shows exactly where stickiness is proving to be a big winner for the company.

 

Indeed, the headline story for the Third Quarter is clearly the growth in Apple’s service wing. The segment has expanded 93% over the previous four years, and was up 12% year-on-year in the latest period with revenues of $19.6 billion.

 

By diversifying its revenue mix from predominantly hardware sales to services, Apple is generating a greater amount of recurring cash, which will better serve the business as time goes on.

 

From an investment perspective, it’s crucial to understand why Apple is such an excellent business. The long-term viability of the company is as important as anything else when deciding whether to make it a stock pick for own portfolio or not.

 

That said, there are obviously other factors to consider when buying shares in a business too. And Apple doesn’t fail to impress on this point either.

 

For instance, Apple’s dividend is about as solid as they come. Its trailing twelve-month dividend payout ratio is low at 15%, and it hasn’t missed a payment from when it initiated its distribution in 2012.

 

On top of that, the company also likes to buy back its own stock. To date, Apple has returned $686 billion to investors in the form of dividends and repurchases, and isn’t likely to stop anytime soon. In fact, given its low yield of just 0.55%, you can expect these shareholder benefits to increase rather than go down.