Apple Has Slumped. Here’s Why Morgan Stanley Says to Buy the Stock and Ignore the ‘Noise.’
Morgan Stanley says Apple stock’s recent decline is nothing but a chance to snap up the stock.
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Apple stock has lagged behind the broader market in recent weeks. One analyst says it offers a good buying opportunity.
The tech giant’s shares have slumped 16% since they hit a closing peak of $142.95 on Jan. 26. In comparison, the Nasdaq Composite has fallen less than 3%, and the S&P 500 is up 2% over the same period. Apple stock slipped 1.8% in recent Friday trading to $119.72.
The company hasn’t actually said anything material in recent weeks, but there has been considerable speculation that there could be softening iPhone demand. The news service Nikkei Asia earlier this week reported that Apple recently cut its production plans for the first half of the year by 20%, due largely to weak demand for the iPhone 12 mini, the low-end version of the 5G-capable iPhone lineup announced last fall. Apple hasn’t commented on the Nikkei report, and didn’t respond to a Barron’s request for comment on it earlier this week.
In a research note Friday, Morgan Stanley hardware analyst Katy Huberty repeated her Overweight rating and $164 target price on Apple stock, asserting that the recent selloff is a buying opportunity, and that recent chatter about developments in the Taiwan supply chain are more noise than substance.
“Over the last two weeks, we’ve seen reports from [other analysts] that Apple is in the process of cutting iPhone production,” she writes. “These reports have contributed to Apple’s recent underperformance and investors are asking what we are hearing from the supply chain and how it impacts our view on iPhone shipments this year.”
Huberty’s view is that the reports say nothing about the fundamental outlook. Checks by her colleagues in Asia find that build orders for iPhone 12 models—aside from the mini—and for legacy iPhone 11 models are being raised, not lowered.
The analyst writes that monthly sales reports from the company’s Taiwanese component suppliers accelerated in February for the fifth straight month. “At a high level, these data points read positively for sustained strong iPhone demand,” she asserts.
Also, she notes that Apple continues to see strong iPhone demand in China, with sales outperforming those of domestic smartphone suppliers. She estimates that based on government data on handset sales, Apple’s iPhone sales in China rose 157% in January on a year-over-year basis, and 314% in February. Third-party data show that Apple’s share of the smartphone installed base reached 20.4% last month, up 85 basis points year over year, and marking the sixth straight month of increased market share, she adds.
While Huberty concedes that there is growing evidence of soft demand for the iPhone 12 mini, overall she still thinks consensus estimates for fiscal 2021 iPhone sales are too low.
”We’ve anecdotally heard from our semiconductor colleagues that Apple’s memory purchases remain robust, which would run counter to the narrative of significant iPhone cuts,” she writes. “Bringing this all together, we believe the news around large iPhone production cuts are likely more supply chain noise than a material concern.”
Write to Eric J. Savitz at [email protected]
