Why is Apple on UBS’s Most Preferred List?

   on March 25 2013 2:48 PM
Apple iPhone
The long-rumored cheaper iPhone will be manufactured by Pegatron and expected to be released later this year, says a new report. Reuters

After following a predominantly downward trend for much of the past six months, in six of the past eight trading sessions, Apple’s (NASDAQ:AAPL) stock has made gains, likely catalyzed — at least in part — by its inclusion on UBS’s Most Preferred List.

In adding Apple’s stock to that group, the brokerage addressed several rumors that have been circulating about the company’s plans in recent weeks. The listing, seen by StreetInsider, cited several positive catalysts for Apple, including “an increase in the buyback/dividend, a new low-end iPhone, and China Mobile (NYSE:CHL) reselling an Apple phone in the fourth calendar quarter, helping support earnings growth in F2014.” Analysts, including Topeka Capital Market’s Brian White, have outlined several of those factors as necessary for a recovery in Apple’s stock price.

“We believe creating a safety net around Apple’s stock with a larger cash distribution is the first phase necessary to stabilize Apple’s stock price,” wrote White, in a research note last Tuesday. The other two phases he included in his assessment were “a trough in the profit cycle” and the “ability to open up new, large market opportunities.”

While two of his proposed three steps are still rumors and the last — the recovery in the profit cycle — will take time to manifest itself, Apple’s stock is already showing signs of bottoming out. Last Friday, shares made an important technical breakthrough; they closed above the stock’s 50-day simple moving average for the first time since October 4, and that move could have positive long term implications.

That Apple is finally trading above this benchmark level gives analysts a shard of evidence that shares may have finally bottomed out after their six-month decline, which began after the stock hit its all-time intra-day high of $705.07 on September 21.

UBS shuffled several stocks around on its list. Based on concerns that the company’s expectations of approximately 40 percent sequential revenue growth in the June quarter might prove to be overly optimistic, Fusion-IO (NYSE:FIO) was added to its Least Preferred List. As Mellanox Technologies (NASDAQ:MLNX) is unlikely to offer any positive news on its first quarter earnings call, UBS removed the stock from its Most Preferred List. Hewlett-Packard (NYSE:HPQ) was taken off the Least Preferred list because the firm believes that investors are beginning to look beyond weak personal computer sales, at least for now.

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