Apple’s stock has been stuck in the doldrums for some time now, as people lament the death of Steve Jobs, the supposed lack of innovation, and concerns that the company just isn’t the same as what it used to be. However, if one key indicator proves to be a tell, now may be the time to buy.
Morgan Stanley analyst Katy Huberty is out with a research note noting that now’s the time to invest in Apple, as Apple has been heavily spending on research and development (R&D) in the past few years and has grown R&D spending 30%-year-over-year from 2010 to 2013.
“Our recent analysis suggests that on a next 12-month view, Apple stock performance tends to improve after periods of R&D growth as the company invests in new product categories,” Huberty wrote in the note. “We saw this trend play out with iPod in 2000-01, iPhone in 2005-06 and iPad in 2008-09. Apple kept R&D growth at over 30% year-over-year during 2010-13.”
As Apple’s major driver, the iPhone, has slowed down, the media, consumers and Wall Street have looked for Apple’s “next big thing” when it comes to a new product. Most are expecting Apple to get into wearable tech, via the oft-rumored iWatch that’s supposedly due later this year. Huberty also cites mobile payments, something CEO Tim Cook talked about on Apple’s last earnings call.
“The mobile payments area in general is one that we’ve been intrigued with, and that was one of the thoughts behind Touch ID,” Cook said on the call. He noted that “by looking at the demographics of our customers and the amount of commerce that goes through iOS devices versus the competition that it’s a big opportunity on the platform.”
In addition to the iWatch and mobile payments, Huberty notes institutional investors (hedge funds, pension funds, etc.) have a lower ownership of Apple than they do other large-cap tech companies such as Google. Coupled with the next iPhone, a larger-screened iPad, and additional software and services, Huberty believes now is the time to buy Apple.
Huberty noted the AlphaWise smartphone tracker indicated iPhone demand of 40.6 million units for the March quarter, and recent promotions such as the launch of the 8 GB iPhone 5c may have helped demand in some areas. She’s expecting Apple to have sold 38 million iPhones this quarter, similar to what other analysts on Wall Street are modeling. She’s also expecting Apple to have delivered 20 million iPads, down from 26 million in the all-important holiday quarter.