“It’s still an out of the consensus bet, but the reason we are still so bullish is based on the fundamentals and separately the multiple,” Munster said on Yahoo Finance’s The First Trade. From a fundamental perspective, Munster — who rose to fame on Wall Street in the early 2000s for studying crowd sizes on iPhone launch days — points to several key drivers of what is likely to be strong profits for Apple in 2020.
First, Apple’s iPhone sales comparisons to a year ago are ‘easy.’ In non-analyst jargon, that means Apple’s sales growth rates should look good in 2020 amid better consumer responses globally to the latest suite of iPhones. That in turn may excite investors even more to get into Apple’s stock or add to their positions.
Secondarily, the Apple Watch is likely to stay a growth juggernaut, Munster said. He expects sales of the Apple Watch will rise 20% to 30% over the next five years as consumers stay focused on improving their health. Munster also thinks Apple will unveil five new iPhones later this year (instead of the usual three), two being 5G capable. And lastly, the arrival of 5G should begin to trigger mass upgrades to Apple’s latest 5G equipped iPhones.
Taken together, Munster believes these fundamental drivers are enough to re-rate Apple’s stock using a more premium price-to-earnings multiple afforded others in tech.
“There is a movement going around as to what is Apple’s fair multiple. Investors are slowly coming to the truth that Apple shouldn’t be penalized because more than half of their business comes from hardware. That has been the historical view, and hardware businesses are press predictable,” Munster explained. “But Apple should be viewed as a typical tech company, and that is a typical tech multiple right around 30 times.”
To Munster’s point, Apple’s forward price-to-earnings multiple is 20.2 times, according to Yahoo Finance Premium data. Microsoft, which is more of a software play, boasts a P/E multiple of 26.2 times.
Munster has a base case of $350 a share on Apple for 2020, up about 21% from current levels. If hit, that would bring Apple’s market cap to about $1.7 trillion.
Apple’s stock has been on a tear this past year, up 100%, on the back of several strong earnings reports. But if Munster is correct, the upside for Apple investors is only just beginning.