Drexel Hamilton's Apple Monitor Shows October Sales 'Slightly Below Historical Seasonality'

October Softness Came After Strong September

Analyst Brian White noted that the final October sales rose 6 percent month-over-month, below the average increase of about 7 percent over the past 11 years. However, White also clarified that the October showing comes close on heels of a historically strong September quarter performance for his Apple Barometer.

Apple supplier Hon Hai reported Thursday a 1 percent month-over-month increase in October sales, below the average 12 percent growth for the past 11 years. This, however, came on top of a 50 percent month-over-month surge in September, the firm noted.

The firm also noted that another Apple supplier, Pegatron, reported a 0.2 percent sales decline in October, while the five-year average performance shows a 1 percent increase.

Gloom And Doom Around Apple Fading

Despite the lukewarm October showing, the firm believes the "gloom and doom" around Apple has started to fade, as investors believe Tim Cook can "make Apple grow again" in the December quarter, with positive momentum from the iPhone 7/7 Plus cycle.

For 2017, the firm estimates 9 percent iPhone unit growth, reversing the 8 percent drop in 2016. The firm also models 2018-unit growth of 9 percent. Drawing parallel to the 2013 summer, the firm said the just bygone summer would have been a bottoming process for the company's stock, as its estimates reflect that the sales and profit cycle troughed in the third quarter of 2016.

Recent Weakness Presents Buying Opportunity

Drexel Hamilton believes the 6 percent correction in the shares of Apple since it reported its fiscal year fourth-quarter results presents another attractive buying opportunity.

Apple: Drexel's Top Pick

Apple remains the firm's top pick for the second half of 2016, premised on its belief that sales, profit and iPhone cycle all bottomed, even as valuation remains depressed. The firm believes that iPhone 7 cycle will return the iPhone franchise to growth.

The firm has a Buy rating on the shares of Apple and a $185 price target.