JP Morgan: Apple is a Sector Unto Itself

JP Morgan: Apple is a Sector Unto Itself

JP Morgan hardware analyst Mark Moskowitz says Apple is a sector unto itself. Notice, that’s not a company, but a sector.

Tiernan Ray reporting for Barrons:

 JP Morgan hardware analyst Mark Moskowitz this morning teams up with the folks at the firm’s portfolio strategy confab to discuss Apple (AAPL) as a “cyclical” sector unto itself. Not a cyclical company, but a sector.

Moskowitz’s colleague, portfolio strategist Thomas Lee, offers up some observations on how massive Apple is relative to the Standard & Poor’s 500 Index, how under-owned it is by funds, and how it is relatively undervalued:

AAPL carries greater weight than most industries and several sectors. At 3.7% of the S&P 500, AAPL carries a larger weight in the index than Basic Materials, Utilities, and Telecom Services (see Figure 7) and would be the 6th largest industry (GICS Level 3). YTD, AAPL has accounted for 11 of the 104-point move in the S&P 500. In other words, as a stock, AAPL is more important than most industries and many sectors. The stock remains underowned institutionally. Of the 282 mutual funds indexed to the Russell 1000, a surprising 40% do not have AAPL as a top 10 holding – this despite the fact that AAPL is the largest stock in the Russell 1000. AAPL at current valuation is undervalued on absolute P/E (12.0x vs. 12.7x S&P 500), its relative P/E (94% vs. historical avg of 164%), or PEG ratio. By our ests, moving to historical avg adds 24- 38 points to the S&P 500 – in short, showing AAPL is important to our Cyclical call.

Observations were made earlier this week S&P index veteran Howard Silverblatt about just how influential Apple is on the S&P. No doubt prompting this report.

Moskowitz also notes that he sees “substantial appreciation potential from current levels” for Apple shares, given that the company “continues to disrupt the tech playing field.”

Apple, with its smartphone, tablet, and notebook devices, aided by the iTunes/App Store, has disrupted the tech playing field, with many companies in the industry scrambling to remain relevant.