By Emily Bary
Technology hardware shares tend to outperform in weaker economic environments, according to Credit Suisse analyst Shannon Cross, and that’s one reason she dubbed Apple Inc.’s stock one of her “top picks.”
Cross assumed coverage of Apple /zigman2/quotes/202934861/composite AAPL -2.44% and other hardware names Tuesday, writing that she has a positive view on the broader sector since “these stocks historically outperform during recessionary periods” thanks to their “strong balance sheets and cash flow.”
On Apple in particular, Credit Suisse raised their rating on the stock to outperform from neutral, and Cross’ $201 price target assumes the shares can rise 16% from recent levels. They were changing hands north of $173 in Wednesday morning trading.
Cross finds plenty of things to like in Apple’s story, including an installed base of 1.8 billion devices and a software strategy that helps give the company “significant competitive advantages.”
“Management focuses on high customer satisfaction by improving ease of use, product quality, and continuity between devices – resulting in high product value and repeat customer engagement,” Cross wrote. “By designing and building Apple software and services for Apple’s custom hardware, the company produces a differentiated product portfolio with leading feature functionality.”
She also cheered the nearly $200 billion in cash that Apple has on its balance sheet. That stash gives Apple “ample dry powder for organic investments, shareholder return,’ and continued M&A,” Cross wrote. Even though she doubts that Apple will conduct a major acquisition, she thinks that the company has been putting “significant cash” toward bolstering its Apple TV+ content base.
Additionally, Cross sees strong margin potential at Apple, noting that the company’s higher-margin services business should continue to grow its relative size within the overall company, especially as Apple dives deeper into areas like advertising and payments.
Shares of Apple are near flat in Wednesday morning trading, though they’ve gained 16% over the past three months as the Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA +1.59% has risen about 4%.