This is a good time to be building Apple (NASDAQ:AAPL) positions into the new year, according to UBS analyst Steve Milunovich, who wrote in a research note on Monday that a combination of valuation, earnings momentum, and technical factors would help the company. Milunovich also reaffirmed his Buy rating and $780 price target on the company’s shares.
Why is Milunovich Optimistic About Apple?
According to the analyst, Apple stock is trading near five-year lows for both its price-to-earnings ratio and enterprise value-to-free cash flow measures. He added that “multiples could improve with a chance for upside earnings surprises coming and earnings momentum bottoming in the December quarter.”
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Milunovich added that he expected Apple’s gross margin to “return to the mid-to-low 40s,” from 40 percent in the September quarter and the company’s forecast of 36 percent for the December quarter.
CHEAT SHEET Analysis: Technicals Are Strong
The analyst was of the opinion that technical indicators pointed at a better view for Apple’s stock in the coming days.
“Apple’s four-year trend line remains intact, and the net retracement hovers around first Fibonacci support at $560,” he wrote, according to Forbes. “Another sign is the recent low in the net new-buyers-to-selloffs ratio. Also, on November 19 the stock exhibited a key reversal day on its highest volume since March. Finally, we see a similar price pattern that has played out in other iPhone cycles, in which the stock corrects after introduction then rallies.”
What Does This Analysis Mean for Apple’s Stock?
Milunovich has noted an increased interest in the company’s stock from value investors even though growth managers took some profits in Apple shares during the recent drop-off. His optimistic analysis grounded in technical fundamentals will help build investor confidence that has eluded the company over the past two months. Apple was already reacting with a more than 3 percent intraday trading gain on Monday afternoon.
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