From a note to clients by analyst Katy Huberty et al. that landed on my desktop Tuesday:
Large jumps in average portfolio allocation increased institutional ownership of large-cap tech stocks in 1Q20, driven mainly by AAPL (+90 bps Q/Q) and MSFT (+70 bps). Meanwhile, allocations to other large-cap stocks were largely unchanged (+/- 10bps Q/Q) in the March quarter.
Largest Q/Q increase in Apple institutional ownership in over a decade. Apple institutional ownership increased 88bps Q/Q to 4.4% exiting the March 2020 quarter, while Apple’s weighting in the S&P 500 grew by 37bps to 5.0%, implying the spread between Apple’s S&P 500 weighting and institutional ownership levels contracted to 53bps, the narrowest spread since June 2014 (2).
Over the last 3 quarters, Apple’s institutional ownership increased by 171bps, the strongest institutional accumulation of Apple shares over a 270-day period since we began tracking this data in 2008, which we believe reflects a few factors.
First, Apple is increasingly viewed as one of the best plays on the upcoming multi-year 5G cycle. Second, Apple offers one of the strongest balance sheets and stickiest customer bases, making it a defensive play during the current pandemic. We see the reopening of Apple’s retail stores, strong Services growth, and the upcoming 5G iPhone launch as catalysts to re-rate shares, with potential upside to our forecasts based on improving data in the month of April and early May.
Cue the exhibits:
Click to enlarge.
Maintains Outperform rating and $326 price target.
My take: Smart money.
…and maybe they’re just getting started. Good design rewards itself.
‘…it took the market so long to recognize that Apple was more than a just a phone company.”
Too right it did. Per Yahoo Finance, institutional ownership of AAPL is presently 62.12%. By comparison, 74% of MSFT is owned by institutions.
But you can see where this is going:
• AAPL is in demand by institutions.
• Apple itself is buying up huge amounts of its own shares.
• Apple’s cash generating machine is in perfect working order.
• Apple is far from through growing.
Therefore, an AAPL supply/demand imbalance of epic proportions has been built. Congratulations, long term AAPL investors!
Then there is the matter of slow but steady organic earnings increases coupled with Apple’s continued buybacks, each round resetting the P/E, shares outstanding shrinking, and showing Apple’s persistent strength despite beliefs that “they just can’t keep growing, they’re too big already.” Each time this happens, someone gets a case of FOMO and the buying commences again. Rinse and repeat.
If Apple continues to successfully diversify its manufacturing and countries’ base, and continued hardware, software and services expansion, Wall Street will finally see Apple’s true long term strengths.