Apple, CDW Preferred at Morgan Stanley Based on Quality Bias By Investing.com

By Sam Boughedda

In a note to investors Monday, Morgan Stanley analysts said Apple (NASDAQ:) and CDW Corporation (NASDAQ:) are the firm’s top Overweight stocks.

However, the analysts cut the price target on Apple to $177 from $180 and CDW to $200 per share from $227.

In the note, focused on the IT hardware market, the analysts explained that consumer and enterprise checks deteriorated in the third quarter, suggesting further downside to estimates, with valuation multiples lower but not at troughs.

“Hardware stock underperformance has accelerated this year as net income estimates have been cut more than in any past downturn,” wrote the analysts. “After outperforming at the start of the year, the last six months have been challenging for Hardware stocks, with the group underperforming the S&P 500 by 16 points and the NASDAQ by 7 points since the December 2021 peak.”

They added that the “accelerating underperformance” is a result of numerous challenges companies in its coverage face, including incrementally deteriorating consumer electronics and PC demand, macro uncertainty and the rising risk of a recession, strength, at/near 40-year highs, and elevated balance sheet, and channel inventories.

“We continue to have a quality bias and highlight AAPL and CDW as our highest conviction OW names (Apple is our Top Pick) given greater insulation during a downturn,” the analysts continued. “Consumer hardware and PC outlook remains bearish as purchase intentions deteriorate further in 3Q.”