The iPhone is one of the most successful electronics products of all time, selling more than two billion units worldwide and turning Apple (AAPL:NASDAQ) into the world’s most valuable brand and company.

With its shares having dropped more than 25% during a horrid year for growth companies, Apple now looks inexpensive. It has all the right qualities for the current investment landscape – high levels of cash generation, lots of recurring revenue and loyal customers.

The electronics company has high customer retention rates thanks to its complex ecosystem, a growing addressable market, plus vast and stable free cash flows of more than $20 billion in the year to 30 September 2022.

Investors should note that recent iPhone supply disruptions could negatively impact its December and March quarterly numbers, expected to be published in January and April 2023. We expect that to be a short-term issue and one which the market will soon look past.

We believe Apple’s shares will ultimately swing back into favour thanks to margin expansion, greater market penetration and its balance sheet strength.

The shares now trade on 21 times forecast earnings for the current financial year. That compares with a price to earnings ratio of 48-times in 2020, according to Stockopedia.

Apple is by far Warren Buffett’s biggest bet, worth around 40% of Berkshire Hathaway’s (BRK.A:NYSE) entire equity portfolio. That’s some commitment from the one of history’s greatest investors.

The US and even Europe might be close to peak iPhone, yet there is still vast scope for growth in places like China, while it is barely scratching the surface in places like India. For example, Apple sold 333 million iPhones in China in 2021, whereas only 4.8 million were sold in India, a nation of about 1.2 billion people.

Profit margins should improve as average selling prices rise – notably it raised iPhone 14 selling prices by $100 in 2022, despite pressure on consumer spending.

There’s also its services business, including areas like Apple TV, iTunes, the App Store and Apple Pay. Services revenue has been growing fast, increasing 54% from Q4 2019’s $11.5 billion to $19.2 billion in Q4 2022. Apple now has more than 900 million subscribers and services gross margins of around 70% are double those of product sales.

The company is forecast to have $47.89 billion in net cash by the end of September 2023. This underpins dividends and share buybacks, which topped $29 billion in Q4 2022, following a $28 billion return in Q3.

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