Apple Inc. Stock Top Pick Amid Mixed Supply Chain “Noise”

Apple Inc. Stock Top Pick Amid Mixed Supply Chain “Noise”

Apple stock has been having an excellent 2017, posting steady gains in all but one trading day so far this year as the shares march on toward the “breakout year” predicted by Drexel Hamilton late last month. One big question now is how long the shares can continue their steady upward march. Supply chain noise has been one factor holding back Apple stock, but as has long been the case with the Wall Street darling, analysts see plenty of upward catalysts coming up this year.

Additionally, there’s a bit of positive supply chain “noise” from one analyst this morning.

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Apple Monitor beats typical seasonality

Drexel Hamilton analyst Brian White said in a research note on Jan. 9 that all of the companies in his Apple monitor reported better-than-usual sales for December. His Monitor includes key Taiwan-based suppliers for the iPhone maker. He said final December sales declined 2% month over month but beat the 11-year average of an 11% decline. This year’s decline was also a major improvement over the December 2015 decline of 31% month over month and is better than the five-year average of a 6% decline.

After including December, White said fourth quarter Apple Monitor sales grew 11% missing the 11-year average of a 19% sequential increase but better than the 7% increase in the December 2015 quarter. He also reminded investors that the Apple Monitor recorded its best September quarter ever in the third quarter. Further, he said this was the first time the sales cycle for the Monitor flipped into the green in 12 months after marking a 19% increase year over year in December, versus a 15% decline year over year just the month before.

Apple stock still “underappreciated”

The analyst continues to see Apple stock as one of the world’s most “underappreciated” stocks. He continues to expect CEO Tim Cook to “make Apple grow again” in the December quarter thanks to the iPhone 7 and “a happy holiday season.” He also anticipates a strong iPhone 8 cycle in September and further “color on future innovations.” Another possible catalyst he sees for Apple stock is improved tax repatriation policies.

White highlighted that one big thing which came out of the Consumer Electronics Show las week was that “everything is becoming a computer.” In his view, Apple is the world’s only consumer-focused computer-related company that also develops software to work seamlessly with its hardware.

He also revived the Apple Car theme, noting that the self-driving car was also a key focus of CES this year. Automakers showed off Apple’s CarPlay, which is now available in more than 200 models offered by 40 different automakers. Despite reports that the iPhone maker shifted its focus away from developing a full car to developing the underlying technology for a car, White sees an Apple Car becoming the “iPhone of the future.”

Apple stock is Morgan Stanley’s top hardware pick

Morgan Stanley analyst Katy Huberty chimed in on catalysts for Apple stock with her own report dated Jan. 8. She declared the iPhone maker’s shares one of their top picks in U.S. IT Hardware for this year as she named a handful of possible catalysts for them. She feels that investors are too focused on “supply chain noise” and not focused enough on the three catalysts she sees, although certainly White’s supply chain update is good news for the company.

There have been multiple signs that Apple is not doing well in China, with its own earnings reports showing tumbling sales there being the most obvious indicator. However, Huberty takes a positive spin on this, saying that the recent iPhone weakness indicates “pent-up demand, especially in China, ahead of a major form factor change with significant technology enhancements, including improved battery technology.” She actually disagrees that China is a risk, seeing it instead as an opportunity because of the weak demand.

She believes Chinese consumers remain loyal to the Apple brand, noting that the iPhone maker continues to hold an 80% share of the high-end of the smartphone market. As a result, she sees the lack of demand as the result of a lack of form factor change with the iPhone 6s and 7, so she expects the iPhone 8 to spur demand in China. She agrees with the rumors that this year will finally bring an iPhone with an AMOLED screen.

Huberty expects data points from the company’s supply chain to boost Apple stock late in the first quarter, although White’s report provides an early point of interest for those following the supply chain. Huberty is eyeing a return to double-digit growth for iPhone units, and her analysis points to at least a 20% increase in unit growth simply from a flat upgrade rate in China.

She’s not the only one expecting the iPhone 8 to significantly boost unit sales, as Nomura predicted recently that the phone will shatter all past sales records.

Tax reform also to support Apple stock

The Morgan Stanley analyst also talked up the benefits of tax repatriation, which has widely been discussed by much of Wall Street since Donald Trump’s surprise election. Huberty noted that the company has $216 billion trapped outside the U.S.

The third catalyst she mentioned is also tax-related, as she expects any tax reform in the U.S. to benefit the iPhone maker. She believes that Apple could see up to an 11-point reduction in its tax rate.

Shares of Apple stock rose by as much as 0.82% to $118.88 during regular trading hours on Monday.

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