Apple’s Stock Gets Upgraded to “Buy” amid iPhone Optimism

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Apple Inc. hasn’t had the best year on Wall Street, but that may be changing. BofA Securities analyst Wamsi Mohan has expressed a newfound optimism about Apple’s stock, upgrading it to “buy” from “neutral.” Mohan believes in the longer-term potential of the iPhone business, which has influenced his positive outlook.

In the short term, Mohan expects some noise surrounding iPhone production, with higher production in the December quarter and potentially lower production in the March quarter. However, he advises investors to disregard these fluctuations. Mohan highlights that the company can benefit from foreign-exchange trends and that any weakness experienced in China can be counteracted by strength elsewhere in the world.

Furthermore, Mohan is excited about the possibility of a “stronger multi-year iPhone upgrade cycle.” As he anticipates the need for new devices to fully utilize generative artificial-intelligence features, he believes this factor will attract institutional investors to increase their positions in Apple.

Mohan has raised his price objective for Apple’s stock to $225 from $208. Although Apple shares have recently underperformed compared to the S&P 500, with a lag of around 6% since Mohan downgraded the stock to “neutral” in September 2022, Mohan points out that the stock’s relative multiple to the index (1.3 times) is currently below its past levels.

Mohan explains that due to a shift towards services and increased vertical integration, Apple can achieve more stable gross margins exceeding 40%. This stability has the potential to drive the stock’s relative multiple higher. Mohan ultimately concludes that he does not expect the relative multiple to decrease significantly, especially not below 1.2 times, as this would create an even more compelling reason to invest in Apple.

As of premarket trading on Thursday, shares of Apple were up approximately 2%. However, the stock has seen a 5% decline so far this year.

Mohan’s bullish stance is in contrast to the more cautious sentiment expressed by other analysts earlier this month. Two analysts downgraded Apple shares at the beginning of the year, citing concerns regarding the iPhone business and the Chinese market.

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