iPhone-6-Concept-Martin-Hajek-2

Morgan Stanley analyst Katy Huberty is advising investors that now is the time to buy AAPL shares – and not just because the iPhone 6 is on the way.

Huberty gives eight reasons (via BusinessInsider) for believing that the price of AAPL stock is likely to increase. None of them are new, but the combined effect is persuasive, she argues … 

1: Institutional investors are likely to increase their holdings

Huberty points out that institutional investment is currently sitting at 2009 levels, and is well below the company’s S&P weighting of 3.4 percent.

2. Apple’s stock buyback program will boost the share price

Apple’s aggressive stock buyback program has lowered its share count by 9 percent, and dramatically increased its yield. The combined effect should see the share price climbing.

3. The iWatch

Analysts are already increasing their target prices for AAPL, but Huberty thinks they have not yet factored in the iWatch. Once this launches, analysts are likely to further increase their targets, encouraging investment.

4. Fresh blood reinvigorating the company

Recent senior hires bring fresh blood to the company and improve its skillset. Angela AhrendtsPaul Deneve, Dr. Dre and Jimmy Iovine are among those Huberty singles out.

5. Rapidly-increasing R&D spending

This has historically been a very good indicator of future revenue.

6. Acquisitions

Analysts focused on Beats (and weren’t necessarily impressed), but Apple has made 29 other acquisitions since the launch of the iPhone 5, suggesting both new talent and new products.

7. Gross margin is stable

Apple’s gross margin went into sharp decline for a time, but the higher-than-expected price of the iPhone 5c and launch of the iPad mini with Retina display have helped margins climb again, and now seem stable. The iWatch too is likely to carry a high margin.

8. Apps business is booming, and streaming music will fix declining music sales

There has been concern that Apple’s iTunes music sales business is in decline, but growing app sales and the Beats acquisition to help Apple compete in the music streaming business will see steep increases in average revenue per user.

The full piece over on Business Insider is worth a read.

Of course, markets are driven by sentiment at least as much as by logic, so there’s no guarantee that any of this good news will impact the share price, but there’s no denying the strength of the argument.

Image credit: Render by Martin Hajek

Leave a Reply

Please log in using one of these methods to post your comment:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

19 Responses to “The eight reasons Morgan Stanley thinks it’s time to buy AAPL”

  1. Yea, buy AAPL now! All of these analysts were complaining about Apple a year ago and saying ‘sell’ or ‘hold’. Now that Apple’s near an all time high they say it’s time to buy. Anyone can do that type of analysis. Apple’s always been a good buy, but it’s not currently a cheap buy like it was a year ago.

    Like

    • rlowhit says:

      Comparing share price to share price Apple one year ago was at $600 today after the split it is at $100. How is the share price cheaper one year ago than now?

      Like

      • Neal Dreher says:

        One year ago today it was at $72.53.

        Like

      • Firstly, Apple’s closing share price one year ago today was $72.53 (on an equal post-stock split basis). Secondly, in investing, when people say a company is ‘cheap’ or ‘expensive’, they are not referring to just the share price, but often the share price divided by the earnings per share (EPS), known as the Price to Earnings (PE) ratio. One year ago today, Apple’s PE ratio was 10.1x. Today, it is 15.7x. The higher the PE ratio, the more relatively expensive it is to buy shares in that company.

        I would argue that now Apple is fairly priced: it is not expensive, but it is certainly not as cheap as it was a year ago – Benjamin Govero is correct.

        Like

  2. Tim Jr. says:

    Interesting list.. What about products are about to be released .. thats usually one of the short term reasons..

    Like

  3. fredhstein says:

    Nice. Thanks Ben and Katy. As for Beats: If the analysts weren’t “impressed”, that may say more about the analysts than the potential of the acquisition. 1) I’ll take Tim Cook and his execs over the analysts. 2) Apple’s deep manufacturing and hardware design assets can work wonders in advancing headphones. 3) Beats brings a big talent pool, not just their top executives.

    Like

  4. It was cheap a year ago when it was $500? A year that they were not ready for new categories and the highlight was fingerprint recognition. As a stock holder for ten years I am very excited about the future. How can you not like a debt free company with high margins? My concern is that Apple has been slow to adjust to the market and Android has taken over. Parents buy the cheap phone for their kids and now that is what the future generation will tinker with. The good news is that iOS 8 will provide some help with the sandboxing problem and because Apple is where the money is.

    Like

    • dcj001 says:

      “My concern is that Apple has been slow to adjust to the market and Android has taken over.”

      It is unfortunate that you, a ten year shareholder, do not understand. It is the market that is too slow to adjust to Apple, despite the market’s continuous attempts to try. Apple earns an overwhelming percentage of smart phone profit share, which is due to increase as Apple increases its unit market share.

      Like

      • airmanchairman says:

        Ever since the 7-way stock split, the most audacious financial move Apple may have ever made (has any company of comparable size ever made an equal or greater stock split in history?), I have struggled to contain my excitement at what their utter confidence could be saying about the coming product cycles.

        I set my milestone at $100 per share and it has duly arrived. And no less an analytical luminary than Morgan Stanley agrees.

        Hold on to your hats, investors, fanboys, fence-sitters and haters alike… Here comes the smack-down!

        Like

    • jrox16 says:

      Android is a free operating system, and only Samsung is profiting off Android as far as hardware is concerned. So while Android holds the market share title, it doesn’t mean much in a discussion about stock price and profits, where nearly all the other makers of phones like Apple are not making any real profits (besides Samsung). Apple’s slower adjusting is a good thing. Samsung is burned out, people are ready for something new and better, and to those people, an iPhone with a big screen will be that next big thing and they’ll never go back because there won’t be any reason to. Most average consumers only buy Android phones because they are either cheap/free, or have huge screens. They could care less about the OS. The cheap/free market Android can keep, Apple isn’t interested in a race to the bottom where there are no profits to be made. But the premium market? I think once there are larger screened iPhones with iOS 8, Android won’t have any advantage left. I still feel Apple knows what it’s doing, despite a few missteps here and there.

      Like

      • Fantastic posts above. Another reason I invest in Apple is because they’re focused on disrupting markets as oppose to limiting itself to a spec sheet.

        I see health as an industries ripe for change. While others are first to the market with wearables and other fads that quickly die, Apple is looking from the top down.

        Recent strategic deals put them in a position to dominate healthcare IF they can pull it off. Dealing with the red tape, lobbying, and moving pieces, makes health a high barrier industry. Aside from Google years ago, I don’t see the other top tech company making this a priority.

        American health is a mess, but managing the complexity and simplifying it for the consumer is what Apple does best.

        Like

  5. Apple’s revenue and net income is three time higher than Google’s, but P/E is stuck around 16 versus 30 for Google.

    Analysts don’t understand Apple. In fact they don’t get much right, but still manage to collect paycheques.

    Like

    • jrox16 says:

      Yeah, the best and most amusing example (a true classic!) was Matthew Lynn’s Bloomberg article in 2007 after the first iPhone launched. It foretold how the iPhone will fail as nothing more than a “luxury bauble that will appeal to a few gadget freaks.” And how it won’t change the industry in any meaningful way. LMAO, how could someone be so wrong? What a blind man. Google for the article, its still out there. How does someone like that get or keep their job? When I saw the iPhone in 2007, it blew my mind and I instantly saw that it was a revolutionary product that would change the world of mobile phones forever. And I’m no analyst or tech reporter, just a former software developer that understands what people want.

      Like

      • jrox16 says:

        Oh, and I wasn’t even an Apple fan then, I was a Windows PC all the way, never owned an Apple product before! The iPhone made me take a good hard look at Apple and since then, over the past 7 years, I’ve converted literally everything to Apple in my home. Even my wife switched from a Galaxy S3 to an iPhone 5S last year and now says she’d never go back.

        Like

  6. janisonjunio says:

    Hi everyone, I need advice on how and where to buy apple stock from the uk!
    Many thanks

    Like

  7. 9. Their upcoming home automation platform and Apple TV. Their PE ratio is pretty low too compared to the tech industry.

    Like

  8. In the end, it all comes down to this: if the iPhone 6 models addresses one notable lacking feature–NFC–in addition to getting larger screens, the iPhone would absolutely clean up the cellphone market almost overnight after the iPhone 6 models reach retailers.

    Indeed, it would make the iPhone 6 an absolute hot seller in eastern Asia, where NFC mobile payment systems are widely used. And that would mean Apple could gain huge market share in critical markets like South Korea, Japan and China, which means a huge bump up in phone sales. The possibility of US$125 to US$135 per share pricing for AAPL stock by the end of 2014 may not be such a far-fetched idea, given the potential scale of new phone sales from October 2014 on.

    Like