Apple’s stock bounces back after analyst says investors should buy the dip

Shares of Apple Inc. rebounded early Thursday, as they attempted to snap a five-day skid lower, after Morgan Stanley analyst Katy Huberty said she believes the recent weakness has been an overreaction to sales warnings from smartphone suppliers, which has created a buying opportunity.

The iPhone maker’s stock

AAPL, +1.62%

gained 1.8% in morning trade, after plunging 11% over the past five sessions. The selloff knocked Apple’s market capitalization below $900 billion for the first time in about 6 months, and pushed the stock to the brink of a bear market. At current prices, the Cupertino, Calif-based tech giant’s market value has recovered slightly to $896.4 billion.

The declines came as a number of smartphone components makers, Lumentum Holdings Inc.

LITE, +2.37%

and Qorvo Inc.

QRVO, +2.21%

which have listed Apple as its largest end customer, and AMS AG cut revenue guidance for the current quarter citing demand changes from a major customer.

The warnings from suppliers followed Apple’s own disappointing outlook, and the technology giant’s decision to stop providing iPhone unit sales figures.

Read more: Opinion: when the going gets tough, Apple hides its numbers.

Huberty contends that the supplier warnings have just been a function of Apple’s cautious outlook, so they shouldn’t have hurt the stock as much as they have.

“Weaker supplier guidance reflect Apple’s already more cautious Nov. 1 guidance and, importantly, doesn’t impact our service growth forecast, which is tied to installed base rather than new shipments,” Huberty wrote in a note to clients. “We’re buyers on unit-driven pullback given services and share repurchases drive future earnings.”

Huberty reiterated her overweight rating and $253 stock price target, which is about 35% above recent levels.

She said unit estimate cuts from Apple are typically “more severe” for the supply chain than Apple, “given inventory fluctuations and more bullish orders ensure adequate supply early in a product launch.” And since Apple has reached a “normal run rate production” earlier this year than normal, Apple reduced orders to the supply chain in November rather than the usual December-January time frame.

Meanwhile, Cascend Securities chief investment strategist Eric Ross cut his stock-price target to $220 from $250. Although he expects Apple “will be fine” as stronger services and wearables results helps offset iPhone XR weakness, he is being more cautious until he starts seeing evidence that sell-throughs are within targets.

Apple shares have shed 10.2% over the past three months, but has still gained 11% year to date. By comparison, the SPDR Technology Select Sector exchange-traded fund

XLK, +1.20%

has lost 7.7% over the past three months, while the Dow Jones Industrial Average

DJIA, -0.10%

has slipped 0.7% over the same period.

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