Apple Inc. stock has faced some headwinds in the last month as a wave of cautiousness swept through the U.S. stock market. The stock was hit hard when analysts at Credit Suisse slashed their forecast on the firm based on weak supply chain orders by its Asian team. Weak supply chain orders suggests that Apple sales might slow down in the near term. Apple is now in the good books of Wall Street as a wave of positive analysts’ view start to surface on the stock.
The stock gained a cool 3.17% to close at $117.29 on Wednesday and the gains continued in after-market trading. Leading the new bullish charge for Apple are the analysts at Goldman Sachs who think that the stock has a 43% upside potential ahead. The Goldman Sachs report echoes the views of analysts at Morgan Creek who believe that the stock could double in the next couple of months. Jim Cramer of CNBC believes that there had never been a strong bear case for Apple to begin with.
The bullish case for Apple
The declines that the shares of Apple faced in the last one-month had nothing to do with the soundness of its business, but it has everything to with the fears of the market. Analyst Simona Jankowski and her team at Goldman Sachs upgraded Apple to a “Conviction Buy” on Wednesday with a price target of $163. The analysts say that the recent weakness seen in the shares of the firm happened because the market mistakes it for a hardware stock when it is more of a software stock.
The Goldman Sachs analysts believe that mistaking Apple for a hardware stock will always cause its share price to plummet on every news of declining sales. In contrast, the firm can make decent recurring revenue by monetizing the millions of devices that it has already sold. In the words of Simona, “the focus will shift from unit growth (which is slowing given a maturing smartphone market) to installed base monetization and recurring revenues” within the next one year.
She believes that Apple has the “most lucrative installed base in the world” because most of the people who buy iPhones, iPads, and MacBook have disposable income that can be spent on add-ons. She thinks that the firm could make average revenue per user of $42 per month as “the adoption of Apple hardware and services increases within the user base.”
Cramer supports the bullish case for Apple
Jim Cramer of CNBC believes that Apple has much upside potential ahead because it currently trades at very low multiples. In his words, “Apple is so darned cheap that it trades more like some metal-bending auto parts company – selling at just 10 times earnings”.
He goes on to say that he is not worried about weak supplier data from Asia because the data doesn’t mean much in terms of Apple’s overall business. He says, “I like hearing from Tim Cook’s Asia team a lot more than the Asia team of UBS or Credit Suisse or whatever other firm might convince you to trade Apple and not own it.”