In years like this one with a good iPhone launch, Apple has outperformed the market by 32%.
From a note to clients by analyst Wamsi Mohan that landed on my desktop Saturday:
Focus on the relative, not the absolute. Recent investor conversations have focused on the significant outperformance of AAPL stock YTD 63% vs SPX Index up 23%. This has led to skepticism of incremental upside in shares of AAPL. Our analysis (Fig 1-3) suggests that if past cycles are any indicator, there is significant room for upside. We focus on Apple’s performance relative to SPX Index from an iPhone launch to the next iPhone launch given investors remain very focused on timing iPhone cycles (while the stock gets rerated for Services exposure)…
Cycle to cycle relative performance has actually lagged. Fig 3 shows that the relative performance of Apple shares have actually lagged (-6% absolute and -8% relative) into the iPhone 11 launch. We attribute this to the low expectations similar to the iPhone 5C/5S (down 25% absolute and down 41% relative) and iPhone 7 (down 2% absolute and down 8% relative) launches. However, the following cycles iPhone 6 (larger form factor), iPhone X (OLED) were cycles that drove significant outperformance on an absolute basis (54% and 48% respectively) and also on a relative basis (32.5% and 31% respectively). We expect material relative outperformance heading into the 5G cycle as well.
History favors owning Apple especially after a weak cycle. In cycles with positive returns, Apple shares have gained on average 47% on an absolute basis heading into product launches and 32% on a relative basis. In cycles with negative returns, Apple shares have declined on average 11% on an absolute basis heading into product launches and 20% on a relative basis. Given that we just completed a negative return cycle (-8% heading into launch of iPhone 11) and are heading into launch of a 5G phone (15% outperformance so far on absolute and 11% relative from iPhone 11 launch through Nov 11, 2019), we expect that the risk reward remains favorable despite the YTD performance.
Maintains Buy and $270 price target.
My take: History favors owning Apple, period.