Apple Has 'Limited Downside,' UBS Says

In a report published Tuesday, UBS analyst Stephen Milunovich maintained a Buy rating and $150 price target on Apple Inc. AAPL. Although the stock is trading at a 20 percent discount to the S&P 500, the analyst believes that most of the F16 risk is already priced into the valuation.

The stock's discount to the S&P 500 has been expanding ever since the launch of the iPhone 6. "We believe the likely reason is concern about the upcoming slowdown in revenue and earnings growth as the iPhone 6 anniversaries as well as memories of the disastrous iPhone 5 cycle," Milunovich said.

The analyst believes that if investors are patient, they can reap the rewards of the recent Applesphere expansion, when it drives the stock higher. In addition, even if the stock is to hold its ground, all it needs is flat sales of iPhone units in F16, which the analyst believes is possible, given the strength in China.

Related Link: Carl Icahn: Apple Shares Now Worth $240

Downside to the stock is also limited, given that the company's product mix supports its gross margin, contrary to the significant decline seen in F13. Also, the investment characteristics of the stock are more favorable than they were in F13.

"With a more difficult F16 looking likely, investors are understandably nervous and the stock may pause here. However, we don't see much downside risk at this point and remain positive on the long term," Milunovich added.

Recent data also shows early signs of institutional investors returning to Apple's stock, with the ration of net accumulators to net reducers improving for the first time in two years and the ratio of new buyers to sell-offs surging to a new five-year high.