Apple named a top pick for 2024 at BofA ahead of key earnings

Apple's second-quarter results are scheduled for release next week, and is largely positive on the prospects, with "services revenue growth and margins to remain strong." However, it cautioned that "the demand environment is weak and a lower guide for F2Q could influence a pullback in shares."

Apple's shares rose 1.22% on Monday at $167.02. The stock is coming off its lowest close in about a year, as well as a five-day drop of 6.5% that erased nearly $180 billion from its market capitalisation. The stock is down 14% this year, making it one of the weakest performers among megacap technology companies.

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The stock has been pressured by concerns over growth, especially for the iPhone in the key China market, as well as regulatory pressure and the lack of a strategy surrounding artificial intelligence. Morgan Stanley trimmed its price target on the stock to $210 from $220 on Monday, expecting Apple to give a disappointing forecast when it reports.

“This appears priced in but in today’s volatile market, it’s a tricky setup,” wrote analyst Erik Woodring. The firm recommends buying on post-earnings weakness, given an upcoming Apple event focused on AI.

Bloomberg Intelligence is also cautious, writing that Apple, given weaker iPhone demand in China, “will likely give fiscal 3Q sales guidance for the device below consensus’ 2% drop.” Analyst Anurag Rana adds that “this could prolong the company’s slow growth and negative sentiment.”

While Apple remains a dominant stock in benchmark equity indexes, accounting for 5.7% of the S&P 500, Wall Street is fairly skeptical. Just 55% of the analysts tracked by Bloomberg recommend buying the stock, while for Microsoft Corp., Nvidia Corp., Alphabet Inc., Amazon.com Inc. and Meta Platforms Inc. the percentage of bulls is near or above 85%.

Some strategists view it as attractive following the year-to-date drop, however. Cantor Fitzgerald recently wrote that the valuation “has now contracted to a much more reasonable level.”

Eric Johnston, Cantor Fitzgerald’s head of cross asset and equity derivatives, added that “with inflation running hot and yields pushing higher, we believe this environment will attract capital to less rate-sensitive stocks and given AAPL’s underperformance, we believe it will be a major beneficiary from this rotation.”