Apple Inc. stock is trading near its all-time highs which raises the question 'what next for AAPL stock?'
Shares of Cupertino, California-based Apple Inc (NASDAQ:AAPL) have been in a solid uptrend through 2017. AAPL stock closed the last trading session at $138.99 per share, a gain of 20% in the year-to-date. Apple stock is now trading less than $2 off its all-time high of $140.28 per share, which it hit on March 2. With the AAPL stock price flirting with its all-time highs, an important question to be answered is 'What Next For Apple Stock?' Is the stock a buy near its all time highs? Well, AAPL stock could be headed much higher and here is why.
iPhone Supercycle Hasn't Been Fully Appreciated
A lot of recent Wall Street commentary on Apple stock has centered on the upcoming iPhone 8 supercycle. The strong performance of the iPhone 7 combined with Samsung's unfortunate 'pocket bomb' scandal ensured that Apple posted numbers far ahead of investor expectations in the last quarterly result update. However, the coming iPhone supercycle could drive Apple's performance significantly higher. How much higher? A recent interview with Morgan Stanley analyst Katy Huberty provides some quantitative answers.
Katy Huberty, a top-ranked technology analyst on Tipranks, believes that the upcoming iPhone "will be so innovative that a rush of people will upgrade, driving much higher sales than the rest of Wall Street currently expects." The Morgan Stanley analyst expects the new phone to feature "OLED screens, 3-D sensors, wireless charging [and] likely some more advanced software in the area of artificial intelligence." Quantifying these expectations, the analyst projects iPhone shipments to grow 20% YoY in FY 2018, twice the Wall Street consensus of 10% YoY growth. A bullish scenario models Apple's iPhone shipment growth at an even more impressive 30%.
Apple stock will see valuation expansion
Katy wasn't the only analyst with positive words for Apple investors. Citi analyst Jim Suva believes that Apple stock is a good buy even at price points close to its all-time highs. In a response to the question, "what next for Apple stock?" the Citi analyst wrote "Near term is the iPhone 8 super-cycle and longer term India (aka Applewood) both of which will drive not only sales & EPS growth but importantly an expansion in Apple’s valuation multiple." What kind of multiple expansions should Apple investors expect? Jim Suva's provided some answers to this stating, "Apple shares, currently trading at 14.5x or 12.5x ex-net cash (compared to the market at 18x), likely to see sustainable multiple expansion." In other words, Apple's valuation multiple (Forward PE) could expand by 24% from its current levels.
Apart from the expansion in the valuation multiple, Jim also expects Apple to benefit from the growth of its high margin Services business, an opportunity for growth in major countries like India, and potential tax reforms. The analyst reiterated his "buy" rating on AAPL stock while hiking the price target to $160, up from the prior $140 target. The $160 price target implies a 15%+ upside from the last closing price.
Apple stock technicals indicate further upside.
Apple stock is currently trading above the critical 50-day, 100-day and 200-day moving averages. More importantly, AAPL stock turned the tables on profit bookers, as it climbed out of a marginal pullback following its recent all-time high.
Trader Todd Gordon of TradingAnalysis.com told CNBC's 'Trading Nation' that the trading session on March 9, which saw AAPL stock slip down to $137 levels before regaining and closing near the $139 level, highlighted the underlying strength of Apple stock. Quoting from the CNBC interview, "So basically [Apple] did a huge selloff intraday, cleared out any selling stops, and then rallied all the way back up to the close. That's a sign of underlying strength." In other words, the weak hands exited Apple stock and the stock is more likely to continue its bullish momentum.
AAPL stock is also among our top stock picks from the technology sector, which have outperformed the NASDAQ by over 130% since 2010.