The stock market’s plunge has left many investors reeling, but for those with some cash and a long-term mindset, it’s a great opportunity to buy. Consider Apple (Nasdaq: AAPL). While it’s likely to see a sales slump because of production challenges and store closures related to the coronavirus, its future is far from bleak.
The iPhone maker has built a formidable business that isn’t highly dependent on product sales: services, which can help offset losses that Apple’s hardware business takes from the coronavirus crisis. Including revenue from the App Store, Apple Music, Apple Pay, iCloud, AppleCare, Apple TV+ and other services, Apple’s services segment recently accounted for about 14% of total revenue and sported a much fatter profit margin.
In Apple’s most recent quarter, services revenue increased 17% year over year, with record performance in cloud services, music, payments, the App Store and AppleCare. Also impressive is its growth in subscriptions across its own native apps and third-party apps: Apple’s paid subscriptions totaled 480 million at the end of its first quarter of fiscal 2020, up 33% year over year.
Importantly, this services business is supported by an installed base of 1.5 billion active devices (up 100 million from the year-ago quarter) – and these users will continue to spend money on services amid the coronavirus pandemic. (The Motley Fool owns shares of and has recommended Apple.)
Ask the Fool
Q: What is “Islamic investing” all about? – T.L., Riverside, California
A: Investors who adhere to Islamic tenets are restricted from investing in certain kinds of companies.
Islamic investing avoids companies with alcohol, gambling, pornography or pork businesses. These investors may also avoid companies involved in tobacco, weapons of mass destruction or media, among other industries. (“Socially responsible” non-Islamic investors avoid some of these industries, too.)
Following sharia (Islamic law), investors also respect a prohibition against paying or earning interest. That means avoiding most financial services companies, such as Western-style banks and insurers – and many companies that are carrying significant debt. In some cases, if an investor owns shares in a company that earns interest, that investor might donate a representative sum to charity anonymously, to “cleanse” the portfolio of the interest.
Avoiding debt-heavy companies can make a sharia-compliant portfolio less risky, but that’s partly offset by ignoring many industries and concentrating assets in others, potentially resulting in under-diversification. Islamic investing also avoids bonds, annuities and even short-selling stocks, which is seen as gambling. Real estate investments, and other asset-based income-producing investments, are allowed.
There’s more to it all, of course, and you can learn more by searching on Google for “Islamic investing.”
Q: Where can I learn about real estate investment trusts (REITs)? – P.D., Jacksonville, North Carolina
A: REITs are companies that typically own and operate real estate properties such as apartment buildings, malls, medical facilities, industrial sites and so on. Learn more in “The Intelligent REIT Investor: How to Build Wealth With Real Estate Investment Trusts” by Stephanie Krewson-Kelly and R. Brad Thomas (Wiley, $30), or at our Millionacres.com sister site.
My dumbest investment
My first investing move was a very dumb one. Instead of diversifying my investments across many sectors, I diversified in just one sector with many companies. That sector, you ask? Marijuana stocks – in 2019. My initial investment got crushed, down 60%. It was all very discouraging and frightening. – Matthew H., online
The Fool responds: That’s a tough first investment. Over the short term, the market can be harsh. However, investments in strong and growing companies that are trading at low or reasonable prices should serve you well over the long run. Putting all your eggs in one basket was risky, as you learned.
In 2019, marijuana-focused companies suffered for multiple reasons. For example, dispensaries were slow to launch in Canada (largely because of licensing issues); prices were high in the U.S. at legal dispensaries (because of steep taxes and costly overhead), driving many consumers to the black market; and many companies were simply not profitable.
The sector’s history offers a good lesson in what happens when excited investors jump in before companies have had a chance to establish records of profitability and sound management. Unless you’ve done a lot of research and understand the industry, the various companies’ competitive advantages and the regulatory headwinds and tailwinds, you’re gambling more than investing. That said, the cannabis market holds long-term promise, but it may make sense to wait until the smoke clears.
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