Apple stock climbed more than 2% during regular trading hours on Wednesday to reach another new high of $139.99 following price target increases and a recommendation from billionaire Warren Buffett. This year is expected to be the year of the iPhone 8, and if rumors continue at the current clip, the phone could be cooking you breakfast in bed by the time the big reveal event nears in the fall.
The iPhone maker’s stock has long been a key holding of institutional investors, and analysts are starting to consider whether those that are underweight or neutral on it will boost their holdings as the iPhone 8 release approaches. But whether they do or not, analysts are trying to drive Apple stock higher by boosting their price targets and crooning repeatedly over what the iPhone 8 might be able to do.
Apple stock price targets increased
BTIG analyst Walter Piecyk was one of the most recent to raise his price target on Apple stock, moving it from $133 to $165 per share. He expects significant growth this year and next and is looking for new product categories — a song multiple analysts have been singing for years. Once again, he pointed to the growing research and development budget, which has doubled over the last three years.
Despite the new categories, he still expects the iPhone to be the main growth driver on the back of a huge upgrade cycle this year, not only because of the spectacular iPhone 8 most are expecting but also because of the large user base with older models.
The company also has $246 billion in cash, leaving plenty of pocket change for acquisitions.
Warren Buffett likes Apple stock
Warren Buffett revealed earlier this week that his firm Berkshire Hathaway doubled its stake in Apple stock, bringing its holdings to 2.5% of outstanding shares, according to CNBC. His reason for doing that was simple: he likes the stock.
Apple Chief Tim Cook thanked Buffett for his investment on Tuesday at the company’s annual shareholder meeting. He said it’s important to have long-term shareholders like Berkshire, which usually buys and holds stock for years. He added that he’s been talking with CFO Luca Maestri about how to encourage more long-term ownership, and they concluded that dividends are a key part of that. According to The Wall Street Journal, dividends are one thing Buffett looks at when considering a stock, in addition to a low valuation and a strong consumer brand.
Cook also hopes to see some tax changes to keep shareholders from trading their stocks frequently.
Will other institutional owners boost their Apple stakes?
Stifel analyst Aaron Rakers has a Hold rating and $130 price target on Apple stock, and he assessed the company’s institutional owner base earlier this week, given Buffett’s increased position. He estimates that about 24% of the company’s top institutional shareholders were Overweight, while the other 76% were either Equal-weight or Underweight as of the end of 2016. He says 24% is the highest percentage of Overweight institutional investors observed in Apple stock in about two years.
As of the end of 2016, the stock made up up about 2.2% of the top 100 holders’ portfolios, he observed, an increase from 2% in the previous and year-ago quarters. The three-year average is 2%, while the peak was in 2012 at 3.6%.
He noted that it will take some time to see whether the iPhone 8 turns out to be a “buy the rumor, sell the news trade” this year, but he does expect that Apple stock will ride higher ahead of the phone’s release.
Will Apple reach a $1 trillion market cap?
With today’s new high, Apple’s market capitalization has surpassed $734 billion, so it’s only natural that analysts start considering when or if it will reach $1 trillion. In order to do that, Apple stock will have to approach $190 a share, and only then will the company become a trillion-dollar company, perhaps the first in the world.
Last year, analysts floated the “Apple as a service” idea to push its market cap past the $1 trillion market, but this year, InvestorPlace contributor Chris Lau suggested something much simpler. He said that all it might take to reach that milestone is for investors to become absolutely convinced that the iPhone 8 “will be a smash hit.” Another possibility he gives is an indication that iPhone sales really are growing like investors expect, but that seems less likely, given that the iPhone 8 is where expectations are getting obscenely high.
Lau doesn’t believe the market is fully pricing in the possibility of double-digit iPhone sales growth riding on the iPhone 8 and on a turnaround in sales in China, something Morgan Stanley suggested recently will almost certainly happen. Apple’s China sales have been plunging, but the firm believes that the iPhone 8 could be so magnificent that it would convince price-conscious Chinese consumers to upgrade. This would save Apple from its weak fate due to the growing popularity of cheaper domestic brands like Xiaomi.