updated 09:51 pm EDT, Tue August 19, 2014
Compelling endorsement from Morgan Stanley may encourage buyers
Apple's stock closed on Tuesday with a new 52-week high, and at one point in the day threatened to top its all-time highest stock price (based on straight split-adjustment). It officially closed at $100.53, not far from its all-time split-adjusted high of $100.72, though it hit $100.68 in intra-day trading. The company's valuation also rose to a market cap of $602 billion.
AAPL performance 09-August
While it is not unusual for AAPL to rise in advance of probable iPhone and iPad announcements, a strong endorsement of why investors -- particularly institutional investors -- should get in on the stock from analyst Katy Huberty of Morgan Stanley may have helped send shares soaring, gaining $1.37 on the day following a rise on Monday that was similar in its percentage.
Huberty outlined some eight reasons why AAPL is an opportunity stock at the moment -- including pointing out that institutional investors, who once fled the stock, are likely to come back given that institutional holdings are well below the company's S&P weighting of 3.4 percent. She also mentioned that the gross margin, at around 40 percent, has been stable for some time in contradiction to the rest of the industry, reports AppleInsider. The strong increase in R&D spending has also been a historical indicator of future profits.
Other factors Huberty mentioned included the infusion of new VP hires and other talent coming into the company through acquisitions. Though analysts have been fixated on the Beats deal as it was the most expensive, she notes that Apple has made 29 other known acquisitions since the introduction of the iPhone 5 in 2012. The aggressive stock buyback program has also increased the company's yield -- to the point that if stock dilution and stock retirement factors are taken into account, AAPL will actually need to reach $110 per share to truly top the previous all-time record.
Finally, Huberty speculates that Apple will release an "iWatch" soon, and she believes that Apple will sell at least 41 million (and up to 60 million) of the as-yet-unannounced product in its first year. She also believes that the Beats acquisition will help Apple reverse a small decline in music sales by supplementing it with streaming options, increasing overall music revenue per user.
Of course, the anticipation of how well Apple's next-generation iPhone will do is also driving excitement, based on a rumor that the company will unveil the redesigned iPhone on September 9 and likely begin shipments a week to 10 days later. The iPhone, which analysts tend to over-focus on as if it was the company's sole product, has beaten expectations across the year and there is reason to believe that at least some of the larger-screen rumors are correct -- providing a more powerful temptation to current Android users to trade up, alongside the usual strong demand for any new iPhone from its upgrading base.
In addition, the next iPad is likely to meet with some pent-up demand, as it will likely incorporate the incredibly popular "Touch ID" feature that helped make the iPhone 5s a runaway hit. Demand for the iPad has been on a slight decline over the past two quarters, but some solid improvements in the next model could persuade both new users as well as those still using older models to upgrade.
Apple's all time market capitalization mark of $665 billion will be broken if the company can exceed Huberty's target price of $110, either this year or shortly afterwards, presuming that the company has another record holiday season. Morgan Stanley continues to maintain an "overweight" rating on the stock.