Smartphone maker Apple Inc. (AAPL) is "a name to own in volatile market conditions," according to one team of bulls on the Street, downplaying investors' reaction to the tech titan's most recent quarterly report and concerns over slowing iPhone demand.
Trading down about 0.6% on Thursday afternoon at $158.56, AAPL reflects a 5.5% dip since its Q4 results on Feb 1. The stock is down about 6.3% year-to-date (YTD) versus the S&P 500's 2% decline and the Nasdaq Composite Index's 0.1% loss over the same period.
As February introduces a new wave of volatility to the nine-year bull market, Bank of America Merrill Lynch suggests investors buy shares of Cupertino, Calif.-based Apple, highlighting factors such as the strength of its balance sheet.
Services to Drive Growth in Upcoming Years
“In times of market turmoil, we turn to large cap stocks with low leverage, high cash balance, and attractive valuation. Apple offers all this as well as opportunities for future growth," wrote BofA analyst Wamsi Mohan in a note to clients Thursday.
In the note entitled "Attractive in volatile markets, cash cushion like none other," Mohan indicated that Apple's large cash balance should allow the company to expand into new markets. His 12-month price target of $220 reflects a 39% upside in shares and an approximate $1.1 trillion market capitalization.
The investment bank foresees the Silicon Valley giant upping its dividend by 10% in 2018 as it is able to generate between $50 billion and $60 billion in free cash flow (FCF) annually over the next two years. He expects Apple, highlighted as one of the biggest beneficiaries of the GOP tax overhaul, will announce a new share buyback program in April as stock repurchases hit record highs. (See also: Share Buybacks Double Under Trump Tax Plan.)
Mohan noted that while investors may be disappointed with slower-than-expected iPhone X sales, BofA views "low single digit unit growth and mix adjusted ASP (average selling price) growth into 2019, with upside to gross margins." Additionally, he expects services to remain a key growth driver for Apple in the upcoming years. (See also: Apple Music Challenges Spotify Ahead of IPO.)