Friday, March 1, 2024
Hometalking numbersWhy you should date Apple, not marry it: Portfolio manager

Why you should date Apple, not marry it: Portfolio manager

There are high school crushes, celebrity crushes, and now stock crushes. One analyst has fallen head-over-heels in love with Apple.

Over the first six months of 2013, Apple was down 25%. The second half saw a change in momentum; Apple rallied in the second half by over 41%, giving it a chance to eke out a 5% return for the year.

Brian White of Cantor Fitzgerald Equity Research believes the rally will continue. He is calling Apple the "top large-cap pick" for 2014 and says the tech giant will excite investors this year. White is also a bullish because of new product categories and growth in China, writing in his most recent note:

"For 2014, we expect Apple to enter new product categories, re-accelerate growth in China and deepen its offerings in existing device categories. As we have previously discussed, we believe the 'iWatch' will become a reality in 2014, while our checks indicate the potential for up to three iPhone screen sizes with entry into the mega-sized smartphone category. Also, there have been numerous media reports indicating a 12.9-inch iPad could be unveiled in 2014; however, our research suggests this 'larger iPad' is really a hybrid device (i.e., bigger than an iPad but more mobile than the MacBook Air/Pro) that we refer to as the 'iPad Pro.' Finally, we believe the recently announced iPhone agreement with China Mobile will reignite sales growth in China."

(See: CNBC technology coverage)

But to Wells Fargo Securities' analysts, Apple investors should be looking for love elsewhere. The team of Maynard Um, Munjal Shah, and Santosh Sankar downgraded Apple to "market perform" from "outperform". They believe Apple will remain in the range of $536 to $581 per share. In their first report of the year, Wells Fargo's analysts write:

"We're concerned that 1) GM [Gross margins] will come under pressure later this year in the iPhone 6 cycle, 2) there is limited amount of incremental market cap opportunity in the existing product segments Apple plays in (including the TV and watch opportunities) without material market share gains, and 3) the balance of power may start to shift back to wireless operators from handset vendors."

What's more, Wells Fargo claims that Apple's recent increases in market cap "have come at the expense of other consumer electronics competitors". In other words, Apple is up because it took dollars away from its rivals, not because it grew the market.

(Watch: Wells Fargo cuts Apple rating)

Portfolio manager Chad Morganlander of Washington Crossing Advisors says Apple has value but suggests a George Clooney-like approach to investing in the stock.

"Apple's cheap from a valuation perspective," says Morganlander. "But I wouldn't marry this company, I would be dating it."

"You could get an upside potential of 15%," says Morganlander. "But, this is a technology company and one has to always consider that there's an obsolescence of technology that comes into play. We believe that within the next 18 months, they really need to come out with something new."

Morganlander believes investors could make 15% over the next twelve months investing in Apple but, on a long-term basis, he thinks the stocks growth will slow.

"Growth rates are decelerating rapidly. You're getting to get to a point where, 18 to 24 months from now, you're going to have GDP-like growth rates. And, operating margins and gross margins, unless they come out with something exciting, will come under pressure."

CNBC contributor Andrew Busch, editor and publisher of The Busch Update, says the charts show Apple shares as currently trading the midst of a $56-wide uptrend channel that began in the second half of 2013.

"It makes perfect sense to me that you'd have big disagreements about where Apple is going in the near term," says Busch. He would hold off on buying shares until it nears the bottom of the channel at around $540 per share.

Busch believes Morganlander's dating advice on Apple's stock is a good one to have in general across the board – well, at least as far as stocks are concerned.

"I agree: date this thing," says Busch. "Date all stocks. I don't think you marry anything for the long term. When it comes to trading, that's the key – it's being flexible."

To see the rest of the analysis by Morganlander and Busch on Apple, watch the video above.

More from Talking Numbers:

Strategist: Here's why you can expect 2,000 in the S&P in 2014
Is one of the best trades of 2013 also good for 2014?
More bad news ahead for those trying to play gold this way: Strategists

Follow us on Twitter: @CNBCNumbers
Like us on Facebook:

- Advertisment -

Most Popular