There's no argument the "Magnificent Seven" stocks were among the market's best performers last year, and that trend has continued into 2024. Unfortunately, one member of this vaunted group has been in the spotlight but not in a good way. Last week, the U.S. Department of Justice filed an antitrust lawsuit against Apple (AAPL -0.35%), alleging the company engaged in questionable practices to maintain a monopoly with its iPhone.
One analyst believes that while there are challenges ahead for Apple, the "headline risk" doesn't change the overall investing thesis.
Challenges ahead
In the wake of the filing, Wedbush analyst Dan Ives reiterated his outperform (buy) rating and $250 price target on Apple stock. That represents potential upside for investors of 45% compared to Friday's closing price.
Ives notes that while Apple will likely be forced into compromises regarding its App Store policies and may pay a "hefty fine," he doesn't view this development as a "thesis changer" despite the "headline risk." Furthermore, while the case will remain an overhang, it will take years to resolve.
Plenty to like
Despite the lawsuit, there's still plenty to like about Apple stock. In its fiscal 2024 first quarter (ended Dec. 30), revenue of $119.6 billion climbed 2% year over year, while earnings per share (EPS) climbed 16% to $2.18, an all-time high. Management cited expanding margins and record-high services revenue for the solid results. Apple also reported an installed base of 2.2 billion active devices, another record for the company.
Furthermore, with inflation beginning to abate, pent-up demand for the iPhone could result in a robust upgrade cycle, which would significantly boost sales.
Apple is currently selling for 27 times earnings, a discount to the price-to-earnings (P/E) ratio of 28 for the S&P 500. That discount to the broad market suggests Apple is a buy now while current headlines are weighing down the stock.
