Apple won over one of the last remaining bears as Goldman ditches ‘Sell’ rating

One of the more notable analyst reactions to Apple Inc. (NASDAQ: AAPL)’s Wednesday earnings report was one of the few remaining bears acknowledged defeat. On Thursday, Goldman Sachs analyst Rod Hall upgraded Apple’s stock rating from Sell to Neutral.

Goldman was on the wrong side of the trade

Hall said in a Thursday note that a shift in sentiment is justified after the iPhone maker’s earnings report came in better than expected, according to Yahoo! Finance’s Editor-at-Large Brian Sozzi. The analyst had expected the new iPhone cycle to underperform during the pandemic and it is evident this view “was clearly wrong.”

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Apple not only sold more iPhone devices than expected but it “materially outperformed” in terms of Mac and iPad sales in the quarter.

The research firm included Apple’s stock in its “Americas Sell List” since April 16 of last year. Since then, Apple’s stock gained more than 85% versus the S&P 500 index that is up nearly 50% over the same time period.

Cramer: Hall is more than just throwing in the towel

Hall isn’t just “throwing in the towel” by admitting defeat in his Apple stance — he is throwing in “five robes,” CNBC’s Jim Cramer said on “Squawk on the Street.” Hall’s stance on Apple’s stock outlook of falling from around $133 to the $80s is odd given the magnitude of Apple’s beat.

Put in context, Apple beat expectations on the revenue line by $12 billion in the recent quarter and this figure is larger than the 12-month trailing revenue of 330 S&P 500 companies. Also, Services revenue hit an all-time high of $16.9 billion in the quarter which implies the one segment alone is larger than the majority of companies.

“Apple, I think, people are misjudging entirely. I think Apple was an extraordinary share take. I think Apple was an amazing move in services,” Cramer said. “Goldman, the bear, had to throw in the towel.”

Not all analysts are bullish

Hall has some company among fellow Street analysts who aren’t comfortable in recommending Apple’s stock at current levels. BofA Securities Wamsi Mohan is sticking with his Neutral rating and said on CNBC’s “Squawk Box” he is worried about 2022.

Apple reported a “stellar” quarter on Wednesday but this was on the heels of its prior “blowout” quarter three months ago, the analyst wrote. 

After two quarters of exceptional performance, this raises serious questions as to how Apple will show year-over-year growth in 2022. In fact, Apple’s earnings growth through 2023 will come in at best flat and may even decline from current levels.

“It’s very hard to justify a higher multiple on that,” the analyst said.

Finally, the risk to reward profile for Apple’s stock is a lot more balanced at current levels, the analyst said. As such, investors should look to gain exposure in names that are likely to benefit from catalysts associated with the economic reopening. For example, as enterprise spending rebounds, names like Seagate Technology PLC (NASDAQ: STX) could outperform.