Billionaires have started shifting their portfolios, selling Apple (NASDAQ: AAPL) shares and some picking up a top TSX stock instead. This pivot reflects a desire to move from highly valued U.S. tech stocks to assets offering consistent, long-term returns. Apple stock, a titan of innovation, has delivered decades of growth. Yet its recent challenges highlight why some high-net-worth individuals are rebalancing. However, this TSX stock tells a story of growth tied to real-world infrastructure, making it a compelling choice for investors.
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Apple falls from the tree
Apple stock’s recent earnings showcased its might but also revealed cracks. Revenue for the last quarter declined slightly year over year, standing at $91.2 billion, a 1% dip. While its services segment, including iCloud and Apple Music, continues to grow, hardware sales, particularly iPhones and Macs, have seen weaker demand. Its gross margin of 44.5% remains robust, but the declining unit sales hint at market saturation, especially in developed economies.
Enter Canadian Pacific Kansas City (TSX: CP). CP’s earnings tell a different tale. Its revenue for the third quarter reached $4.3 billion, reflecting a 6.3% year-over-year growth. The company benefits from its strategic position as the only railway directly connecting Canada, the U.S., and Mexico, providing a competitive edge in North American trade. With a net profit margin of 24.5% and a return on equity of over 8%, CP demonstrates operational efficiency and growth potential, especially as global supply chains recalibrate post-pandemic.
Seeking value
One of the reasons for Apple stock’s fall from grace is its valuation — one of the reasons why investors such as Warren Buffett have taken earnings from the stock. With a forward price-to-earnings (P/E) ratio of 30.77, Apple is priced for perfection. Any slight deviation in performance or macroeconomic challenges could put downward pressure on its stock. However, CP’s forward P/E of 22.03 appears more palatable, offering value alongside its growth trajectory.
Another factor driving this shift is dividend reliability. Apple’s forward dividend yield of 0.43% pales compared to CP’s modest but appealing 0.69%. While Apple stock emphasizes buybacks over dividends, CP’s payouts reflect a commitment to returning cash to shareholders in a steady, predictable manner.
The macroeconomic backdrop also plays a role. Higher interest rates make high-growth tech stocks like Apple less attractive because the cost of future earnings is discounted more steeply. Infrastructure stocks like CP, however, benefit from their stable cash flows, which appeal during periods of economic uncertainty.
Future in focus
Looking forward, CP has significant tailwinds. The integration of Kansas City Southern is expected to unlock synergies, enhance operational efficiency, and tap into booming North American trade routes, especially under the United States-Mexico-Canada Agreement (USMCA) agreement. Meanwhile, Apple stock’s growth depends heavily on consumer spending, which faces headwinds from inflation and economic uncertainty.
Investor psychology also matters. Billionaires often focus on capital preservation alongside growth. CP offers a tangible asset with its railroads and infrastructure, which holds intrinsic value. Apple stock, while innovative, operates in a sector prone to rapid change and fierce competition.
Lastly, geographic diversification is a factor. With CP, billionaires are increasing their exposure to the Canadian and North American markets. These remain relatively stable compared to the global tech landscape. This move aligns with a strategy to hedge risks while capitalizing on reliable economic growth.
Bottom line
Billionaires are choosing CP over Apple stock due to valuation, reliability, and macroeconomic trends. While Apple stock remains an innovation leader, its current challenges make it less appealing to those seeking safety and consistency. CP, with its strong fundamentals and future potential, stands out as a beacon of stability and growth.
