Apple named top pick at Morgan Stanley even as consumer risk concerns continue to rise
Feline Lim

Apple (NASDAQ:AAPL) was named the top pick at Morgan Stanley even as the investment firm acknowledged that risks to consumer and enterprise business are rising, "suggesting further downside to estimates."
A group of analysts, led by Erik Woodring, cut earnings per share estimates and price targets on a number of hardware and enterprise stocks, including Apple (AAPL), Seagate Technology (STX), GoPro (GPRO), Logitech (LOGI), Sonos (SONO), CDW (NASDAQ:CDW), Dell Technologies (NYSE:DELL) and HP (HPQ) by 10% and 15%, respectively. The analysts noted hardware underperformance has accelerated this year, with the group underperforming the S&P 500 and NASDAQ by 16 and 7 points, respectively. 
The analysts added that the underperformance is due to a number of reasons, including slowing consumer electronics and PC demand; macro uncertainty hitting enterprise hardware budgets; inflation at or near a 40-year high; and elevated balance sheet and channel inventories.
"While the market is increasingly pricing in 'bad news', we believe it's still too early to get positive on hardware names, and see a challenging [third-quarter] setup," the analysts wrote.
The group also noted that a number of companies have lowered their outlooks for the next 12 months, but there is still expected to be more cuts as earnings season comes into play.
As such, the analysts said there is a bias towards "quality" with Apple (AAPL) and CDW (CDW) as the highest conviction names, with Apple giving "greater insulation during a downturn."
Apple (AAPL) is slated to report earnings October 27.
Logitech (LOGI), Xerox (XRX) and Cricut (CRCT) are the top underweight ideas, with Morgan Stanley citing the "elevated risk of negative revenue and earnings revisions post-COVID."
Earlier this month, Credit Suisse said Apple (AAPL) would continue to benefit from strong demand for its iPhone 14 Pro and iPhone 14 Pro Max models.