Apple stock managed to outperform the S&P 500 in 2016, but one analyst still sees it as one of the world’s most underappreciated stocks. Nevertheless, the iPhone maker’s share pulled back on Friday, the last trading day of the year, along with most of the same analyst’s top tech stock picks.
In addition to Apple stock, analysts are recommending cloud and semiconductor plays for 2017, although neither Microsoft nor Amazon are necessarily at the top of the heap in this area.
Apple stock has underperformed for two years
In a research note dated Dec. 30, Drexel Hamilton analyst Brian White again praised the virtues of Apple stock, saying that he expects 2017 to be a “breakout year” for it. He noted that the shares have outperformed the S&P 500, but they have underperformed the index since 2014, the year the iPhone 6 was released.
Investors were unenthused by the iPhone 6s and the iPhone 7, as neither brought the growth most feel the tech giant should continue to see. Also murmurs of Apple losing its innovative mojo started to rise again after being quieted with the release of the iPhone 6 in 2014. Meanwhile analysts continue to harp on the iPhone 8, which is expected next year along with a load of major improvements in honor of the smartphones 10-year anniversary.
iPhone 7 to bring return to growth
It seems safe to say that time is running out for Apple. If it doesn’t deliver an innovative iPhone next year, investors may leave it for dead—and what’s worse is that consumers just might do the same. Past surveys suggested that many are holding back on buying a new iPhone this year in anticipation of what next year will bring, although holiday iPhone sales suggest otherwise. Indeed, Apple’s annual iPhone upgrade program may be the only thing supporting iPhone 7 sales this year.
White, however, is expecting the iPhone 7 to spur a return to growth as early as the December quarter. He also anticipates the iPhone 8 launch in September 2017 and “more color on future innovations.” In regards to Apple stock in particular, the analyst looks for the dividend yield to be between 3.5% and 4% based on the company’s $237.6 billion in overseas cash and the possibility of tax repatriation incentives.
Shares of Apple stock fell by as much as 0.38% to $116.29 during regular trading hours on Friday.
Cloud plays to lead 2017
In addition to Apple stock, White likes Box, Salesforce, Splunk and Twilio. All but Splunk are in the cloud business, but Splunk deals in the related field of Big Data. White feels that investors just don’t understand Box, but he expects next year to be “exciting” because of the company’s innovations over the last year and a half.
He called Salesforce “the best equity vehicle for investors to play the cloud trend next year,” as he expects the company to keep expanding the reach of its Service Cloud and Commerce Cloud. He sees Twilio as a “disruptive, next-generation cloud communications-focused PaaS vendor” and expects it to post the fastest sales growth within his coverage next year. The analyst called Splunk “the premiere Big Data Play for investors,” noting that its shares declined 12% this year, but he expects scale, brand recognition and its “technological leadership to help it pull ahead in 2017.
White’s not the only one to favor mostly cloud plays for 2017. In a post on Investopedia, Shoshanna Delventhal highlighted cloud infrastructure firm VMware, despite the fact that its shares soared by more than 41% this year. The company kept beating earnings estimates and struck a new partnership deal with Amazon Web Services.
Delventhal likes Micron Technology even though the stock skyrocketed nearly 60% this year, as analysts boosted their estimates repeatedly throughout the year. Indeed, it’s been a hot year for semiconductor firms, especially smaller ones, as Advanced Micro Devices (up nearly 300%) and NVIDIA (up more than 200%) have been on a tear for much of this year.