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Motley Fool: Apple still worth a bite

The new Apple iPhone X sits on display as consumers line up to buy the phone at the Apple Michigan Avenue store in Chicago on Friday, Nov. 3, 2017. (Associated Press)
The new Apple iPhone X sits on display as consumers line up to buy the phone at the Apple Michigan Avenue store in Chicago on Friday, Nov. 3, 2017. (Associated Press)

It might be easy to dismiss Apple (Nasdaq: AAPL) stock as an investment, fearing that growth in its iconic iPhone may soon plateau. Think again, though.

The company has accumulated an estimated $252 billion in its overseas coffers, untaxed by Uncle Sam. It now plans to take advantage of the new tax laws and bring much of that money home, paying a tax rate of just 15.5 percent (instead of 35 percent) on it and saving tens of billions of dollars in taxes. With that money, Apple plans to hire about 20,000 new workers and to build a new campus. It can also increase its share buybacks and pay down some debt.

There are other reasons to like Apple right now. Reports of slow iPhone 8 sales point to greater adoption for the flagship iPhone X. Meanwhile, Apple’s revenue from its high-profit-margin services segment, which includes the App Store, iTunes, AppleCare, Apple Pay, licensing and more, was one of its fastest growing in 2017, and is on its way to doubling by 2020.

Apple’s dividend recently yielded 1.4 percent, and it has plenty of room to grow. Long-term investors should give Apple some consideration. (The Motley Fool has recommended Apple and owns shares of it as well as the following options on it: long January 2020 $150 calls and short January 2020 $155 calls.)

Ask the Fool

Q: If I want to invest, ideally in a Roth IRA, and also be able to withdraw the money whenever I need to without paying a penalty, what should I do? – M.C., Saratoga, New York

A: Any money you think you may want to withdraw within five years (or, to be more conservative, 10 years) shouldn’t be in stocks, as the stock market can swoon any time and take some years to recover. Short-term money should be parked in investments such as CDs or money market accounts.

Roth IRAs are great long-term savings accounts, designed to let us withdraw money in retirement tax-free. They have rules, though. You’re expected to leave your money in them for at least five years and not withdraw your earnings until at least age 59 1/2. Otherwise, a 10 percent early-withdrawal-penalty fee can apply. Learn more at rothira.com and fool.com/retirement/ira/compare.aspx.

To invest in stocks and be able to withdraw funds whenever you want – though it can be good to not sell after a market drop – you can open a regular brokerage account that’s not tax-advantaged (i.e. you’ll face taxes on capital gains). Don’t dismiss the Roth too quickly, though – its tax benefit can be very powerful, especially if your investments grow in it for many years.

Q: How can I invest in renewable energy companies? – A.H., Elkhart, Indiana

A: First, learn a lot about the industry and the players in it, determining which ones are likely to be long-term winners.

An easier route is just to invest in mutual funds or exchange-traded funds that are focused on alternative energies, as they’ll spread your dollars over many alternative energy companies. Few have great records, so far – it’s still a young industry.

My dumbest investment

Several years ago, I ran across a shipping company that was paying out 90 percent of its net income. After a heck of a ride, I’m sitting on a 99.9 percent loss. I’d chased a dividend that turned out to be too good to be true and invested in a sector I didn’t know much about.

Some things that should have been red flags: 1. The company was incorporated in the Marshall Islands, with its management mostly in Greece and elsewhere. 2. At least two of the company’s major business partners were owned at least in part by the CEO. 3. It was stated in the company’s filings that they could issue more shares at any time to pay for new ships … and they did, diluting the value of existing shares. 4. There were negative stories on the company in the news, which I ignored.

Lessons learned: Invest in what you know, assume good things are too good to be true until proven otherwise, do all your own homework, do it again when things get rough, keep an eye on insider ownership and dealings, and never assume things can’t keep getting worse. – D.M., Iowa

The Fool responds: The lessons you learned are good ones. A 90 percent payout ratio isn’t always a deal-breaker, but lower numbers leave more room for future dividend increases and give the company more flexibility.


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