'Now is the time to invest' in Apple ahead of new product launches, Morgan Stanley says

Posted:
in AAPL Investors edited April 2014
A strong recommendation for Apple stock was pushed by investment firm Morgan Stanley on Thursday, which said now is the right time to invest due to low institutional ownership, resilient iPhone sales, and anticipated upcoming product launches.




Analyst Katy Huberty believes shares of AAPL have been "de-risked" ahead of upcoming product cycles, she said in her latest research note, a copy of which was provided to AppleInsider. If investors are on the fence about Apple stock, she said now is the right time to buy in before upcoming growth.
Morgan Stanley's Katy Huberty expects Apple will enter the mobile payment and wearable devices markets.
Specifically, she said her recent analysis shows that Apple stock tends to improve after periods of growth in research and development, as the company invests in new product categories. She cited R&D investment ahead of the launches of the iPod in 2000 and 2001, before the iPhone in 2005 and 2006, and ahead of the iPad in 2008 and 2009.

Similar to those periods, Apple has kept its R&D spending growing more than 30 percent year over year for the period between 2010 and 2013. In Huberty's view, it's "likely" that some of Apple's recent investments were in new product categories.

Specifically, she expects that Apple may be about to enter the mobile payments space, and could also make its first official foray into the wearable connected electronics market.

In addition, investors are currently underestimating both Apple's ability to innovate and launch new products, as well as the value of its existing user base, many of which have active iTunes accounts with connected credit cards.

Even before Apple launches new products, Huberty also believes that institutional ownership of Apple stock is too low. She already highlighted this trend in February, when her research found that institutional investors' stake in Apple was at a new 5-year low.




The analyst also believes that iPhone demand may have been slightly better than expected in the just-concluded March quarter. A recent survey by Morgan Stanley and AlphaWise suggests to her that Apple may have sold 38 million units in the three-month span, and she sees the potential for "modest upside" to that estimate.

She sees the potential for Apple to report revenue of $44.5 billion for the March quarter, with gross margin of 38.2 percent and earnings per share of $10.80.

Finally, Huberty also made note that Apple bought back at least $14 billion of its own stock last quarter. Assuming a share price of $500 around the time that the buyback occurred, the analyst calculates that the buyback could add 19 cents to earnings per share for the March quarter.

With a strong recommendation for investors to buy AAPL, Morgan Stanley has maintained its price target of $630 with an "overweight" rating. The increase to that target was made in December.
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Comments

  • Reply 1 of 36

    That's what I thought 2 years ago, still holding and waiting...

  • Reply 2 of 36
    hydrhydr Posts: 146member
    Quote:

    Originally Posted by techguy911 View Post

     

    That's what I thought 2 years ago, still holding and waiting...


    You & me both broski. I wouldn´t mind +45%.

  • Reply 3 of 36
    pmzpmz Posts: 3,433member

    Doubtful. After Apple's rise, Wall Street has seen fit to artificially manipulate the price down. The current stock price reflects absolutely nothing. It is all fake. All a scam. It is not based on anything real, except a bunch of thieves tweaking numbers in between bets.

     

    Gambling with your friends is illegal, but the stock market is legal. The world makes no sense.

  • Reply 4 of 36
    macxpressmacxpress Posts: 4,828member
    Can't see why....I usually see Apple's stock go down after a product announcement.
  • Reply 5 of 36
    rogifanrogifan Posts: 10,669member
    pmz wrote: »
    Doubtful. After Apple's rise, Wall Street has seen fit to artificially manipulate the price down. The current stock price reflects absolutely nothing. It is all fake. All a scam. It is not based on anything real, except a bunch of thieves tweaking numbers in between bets.

    Gambling with your friends is illegal, but the stock market is legal. The world makes no sense.
    A few weeks ago on CNBC they mentioned that both Google and Amazon missed 3 out of 4 quarters. But you wouldn't know that based on what their stock did. Google stock is up over 40% YTD. I'm still trying to understand how Apple got into this situation where they go quiet for 6-8 months at a time, which allows others to drive the narrative. I really hope this isn't the new norm at Apple.
  • Reply 6 of 36
    badmonkbadmonk Posts: 783member
    finally an analyst who makes some sense...as a longterm APPL investor you will see times where Apple goes out of favor with Wall Street. People talk about Apple's inability to innovate but long periods goes without product launches as Apple "perfects its game." For instance, the five+ years between the ipod & iphone debuts...which was very productive time for Apple (even if the Street is clueless).
  • Reply 7 of 36
    rogifanrogifan Posts: 10,669member
    sog35 wrote: »
    Google just reported earnings yesterday:

    $5.04 GAAP EPS vs $4.97 last year.
    That is 1% earnings growth.  Yet the stock is barely down for the week.  BS.  Total BS.  Last quarter Apple reported a 5% increase in EPS earnings and the stock went down 10%.

    But guess what?  You won't see any of the media report the $5.04 GAAP EPS but rather the non-GAAP $6.27 EPS.  Total manipulation.  GAAP is the standard for financial reporting in the USA but for some reason the media and pundits are okay with using Google's total BS non-GAAP calculations.  The same calculations that don't account for stock based compensation and losses from discontinued operations (Motorola).  So those things did not happen?  WTF.  So Google pays their executives billions of dollars and that does not get reflected in EPS?  So they lose Billions on Motorola and that does not effect EPS?

    Total and utter BS.
    This morning on CNBC Jim Cramer said Google is going way higher in the next two weeks and his charitable trust is scooping up the stock. Amazing how they can miss 3 of the last 4 quarters but the stock is up over 40% this year. Yeah it might end the day down 1-2%, but it was up nearly 4% yesterday so big deal.
  • Reply 8 of 36

    And you were rewarded for your patience with massive dividends, as well as positioned to see higher ROI on your initial investment. That's how it's supposed to work. The institutional big traders and high speed hedge funds are the ones who've been monkeying with AAPL for several years, usually in 4Q - after the annual October release of new product, which then further gives the market and the small investor the yips, totally unnecessarily. 

  • Reply 9 of 36
    pfisherpfisher Posts: 758member
    Quote:

    Originally Posted by pmz View Post

     

    Doubtful. After Apple's rise, Wall Street has seen fit to artificially manipulate the price down. The current stock price reflects absolutely nothing. It is all fake. All a scam. It is not based on anything real, except a bunch of thieves tweaking numbers in between bets.

     

    Gambling with your friends is illegal, but the stock market is legal. The world makes no sense.




    That's why I no longer buy individual stocks. Too risky. No matter, you think a stock is going to go up and it goes down and the other way around. Best to just invest in a diversified portfolio of low-cost index funds which beat analysts and you and I the great majority of the time and the costs are far lower (compared to managed funds).

     

    Just read "A Random Walk Down Wall Street" and most of the books was decades of evidence that people can't outsmart the market. John Bogle of Vanguard wrote a book on the same topic.

  • Reply 10 of 36
    I think this is one of those times where there is very little risk of Apple not introducing new products. Aging population means increased demand for screen real estate. Samsung got on this gravy train earlier because they make the best screens and can control their own supply. Apple has had to diversify it's supply chain away from Samsung. That cost time and money.

    The time is up and the money was never a problem. Apple hasn't said anything officially, but they bought $14 Billion worth of shares when the price was at $500 in Jan. Actions are speaking louder than words.
  • Reply 11 of 36
    SpamSandwichSpamSandwich Posts: 31,007member
    pfisher wrote: »

    That's why I no longer buy individual stocks. Too risky. No matter, you think a stock is going to go up and it goes down and the other way around. Best to just invest in a diversified portfolio of low-cost index funds which beat analysts and you and I the great majority of the time and the costs are far lower (compared to managed funds).

    Just read "A Random Walk Down Wall Street" and most of the books was decades of evidence that people can't outsmart the market. John Bogle of Vanguard wrote a book on the same topic.

    That makes no sense. Nothing prevents you from duplicating the diversification of a fund on your own. You can even choose to duplicate the buy-sell strategy of Warren Buffet, if you're so inclined.
  • Reply 12 of 36
    eric38eric38 Posts: 100member
    sog35 wrote: »
    Google just reported earnings yesterday:

    $5.04 GAAP EPS vs $4.97 last year.
    That is 1% earnings growth.  Yet the stock is barely down for the week.  BS.  Total BS.  Last quarter Apple reported a 5% increase in EPS earnings and the stock went down 10%.

    But guess what?  You won't see any of the media report the $5.04 GAAP EPS but rather the non-GAAP $6.27 EPS.  Total manipulation.  GAAP is the standard for financial reporting in the USA but for some reason the media and pundits are okay with using Google's total BS non-GAAP calculations.  The same calculations that don't account for stock based compensation and losses from discontinued operations (Motorola).  So those things did not happen?  WTF.  So Google pays their executives billions of dollars and that does not get reflected in EPS?  So they lose Billions on Motorola and that does not effect EPS?

    Total and utter BS.

    Take advantage of this. Every time Apple drops down into the area, buy buy buy. The chance of losing money here is very very minimal. Apple will sell 75million iPhones this Holiday qtr. do you actually think the stock will be at $500 then. I hope Apple drops to $400 after earnings. And I say that as a person that holds 550 shares. Cook needs to take his head out of his butt and buy back $100B of their shares and get rid of their silly dividend. Apple's cash should not be used on dividends when they trade at a 7 forward multiple, it should be used for buy backs and acquisitions. It worries me that the company thinks they need to increase dividends in order to get people to invest in them. Btw, Goog trades at a 35PE because they monopolize search and are and have been getting into many other future technologies. Investors see Apple as the iPhone,and one slip-up could spell disaster for the company; unrightfully so.
  • Reply 13 of 36
    SpamSandwichSpamSandwich Posts: 31,007member
    I think this is one of those times where there is very little risk of Apple not introducing new products. Aging population means increased demand for screen real estate. Samsung got on this gravy train earlier because they make the best screens and can control their own supply. Apple has had to diversify it's supply chain away from Samsung. That cost time and money.

    The time is up and the money was never a problem. Apple hasn't said anything officially, but they bought $14 Billion worth of shares when the price was at $500 in Jan. Actions are speaking louder than words.

    What are you going on about? Apple's buyback program is well known. It's a good use of all that free cash.
  • Reply 14 of 36
    eric38eric38 Posts: 100member
    Apple has one major problem. They can't lower prices. They can't sell a cheap phone and never will. That precludes 80% of the world's population of ever owning an iPhone. They have chosen premium products with very high margins in lieu of selling 300m iPhones a year at 15-20% margins. I believe this is a wise decision right now. What worries me, is the competition has caught up, and for Apple to grow in the future, they need to innovate at a faster clip than they have in the last 2 years.
  • Reply 15 of 36
    eric38eric38 Posts: 100member
    What are you going on about? Apple's buyback program is well known. It's a good use of all that free cash.

    Yaaaawn
  • Reply 16 of 36
    cintoscintos Posts: 111member
    "The analyst also believes that iPhone demand may have been slightly better than expected in the just-concluded March quarter."
    Watching the Fiksu adoption data over the past six months shows that the combined iPhone 5s and 5c are running +0.13% of active iPhone population per day. That rate has been solid across the last 4 months. I interpret the data as documenting that 5s & 5c sales continue to be supply constrained. Apple is likely selling every one it can make.
  • Reply 17 of 36
    irelandireland Posts: 17,570member
    Good one, Morgan.
  • Reply 18 of 36
    Quote:

    Originally Posted by macxpress View Post



    I usually see Apple's stock go down after a product announcement.

     

    Too true!  Regardless of the actual stock performance, I'll say that it is at least refreshing to know of ONE analyst from a major firm who thinks Apple has a promising future!

  • Reply 19 of 36
    Apple seems to cycle between being overbought and oversold. Trust me as someone who has owned the stock for over 15 years. Wait, be patient, be patient. It will pay off.
  • Reply 20 of 36
    Quote:

    Originally Posted by sog35 View Post

     Every year PC search is going down and mobile search is going up. 

    This will be interesting to see play out over the next few years.

    ...and I'm guessing that Samsung and the "cheap" Chinese knock off smart phone companies could not care less about Goog.

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