According to Credit Suisse analyst Shannon Cross, tech hardware stocks tend to outperform in weaker economic environments, and that’s one of the reasons she dubbed Apple Inc.’s stock the one of his “first choices”.
Supposed cross-coverage of Apple AAPL,
and other hardware names on Tuesday, writing that she has a positive view of the broader sector since “these stocks historically outperform during recessionary times” thanks to their “strong balance sheets and cash flow.”
On Apple specifically, Credit Suisse raised its rating on the stock to outperform from neutral, and Cross’s $201 price target assumes the stock can rise 16% from recent levels. They were changing hands north of $173 in Wednesday morning trading.
Cross finds a lot to like about Apple’s history, including an installed base of 1.8 billion devices and a software strategy that helps give the company “significant competitive advantages.”
“Management is focused on high customer satisfaction by improving ease of use, product quality, and continuity between devices, resulting in high product value and repeat customer engagement,” wrote Cross. “By designing and developing Apple software and services for Apple’s custom hardware, the company produces a differentiated product portfolio with industry-leading features.”
She also applauded the nearly $200 billion in cash Apple has on its balance sheet. This stash gives Apple “a lot of dry powder for organic investments, returning to shareholders, and pursuing mergers and acquisitions,” Cross wrote. While she doubts Apple will make a major acquisition, she thinks that the company has dedicated “significant cash” to bolstering its Apple TV+ content base.
Additionally, Cross sees strong margin potential in Apple, noting that the company’s higher-margin services business should continue to increase its relative size within the company as a whole, especially as ‘Apple dives deeper into areas such as advertising and payments.
Apple shares are almost flat on Wednesday morning, despite having gained 16% in the past three months as the Dow Jones Industrial Average DJIA,
increased by about 4%.
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