Here's Our Plan for Apple's Stock

* Apple shares are trading higher following an upgrade by Bernstein, but here’s why that call could be a tad premature

* Earnings from Qualcomm and Skyworks this week should help set the stage for iPhone expectations

* Here’s our plan for AAPL shares as well as our inverse ETF positions

Shares of Apple AAPL were moving higher this morning because of a rating upgrade to Outperform from Market Perform at Bernstein. The firm’s thinking shouldn’t be surprising to you as it matches our thinking that Apple’s iPhone will benefit from an AI-led upgrade cycle. 

Alongside that upgrade, Bernstein establishes a $195 AAPL target, below our $205 target. While we agree the upcoming June WWDC event will be a key event for the company and its shares, our thinking is Bernstein could be a wee bit early with its upgrade. So far this earnings season, tepid guidance has hit company shares and that’s why even though we will want to own more AAPL shares ahead of the AI-led upgrade cycle we are waiting at least until Apple’s earnings are out.

Apple will report its quarterly results after this Thursday’s close and we could see the company issue tepid guidance. While we are seeing the PC market rebound and indications are the smartphone market is as well, Apple’s March quarter market share loss for iPhone could drive an underwhelming outlook.

Difficult March quarter comparisons for iPhone, which benefitted from a strong China market last year, are also another factor. We’ll be digging into quarterly results after Wednesday’s market close from Qualcomm QCOM and Skyworks SWKS as much for what they say about the March quarter, but also for what they are saying about smartphone volumes in the current quarter.

Outside of iPhone, chatter points to Apple slashing Vision Pro headset production due to weak demand. We’ve been skeptical of this initial version of the product for a few reasons, price among them. The market has been expecting a fresh round of iPad models, which means that business may not stabilize just yet. 

We’ll gauge the reception to those new models that should start hitting shelves soon after Apple’s May 7 event. The Services business should continue to benefit from the growing Apple install base and serve as a positive influence on March quarter margins.

Should Apple’s current quarter guidance leave the market wanting, one strategy Apple could use to blunt the impact on its shares would be to boost its dividend and expand its share buyback plans. These are tools we’ve seen other companies use in recent quarters, and Apple’s February payment was its fourth one for $0.23 per share.

Finally, because of Apple’s size in both the S&P 500 (second largest at 5.74%) and the Nasdaq Composite (second largest at around 11%), the potential we discussed gives us reason to own our inverse ETFs into its earnings report. There is also the risk that Fed Chair Powell will deliver some tough remarks to the market about Fed policy given recent inflation data. 

Clearing those events could put us back on the path to reducing the portfolio’s exposure to those inverse ETF holdings. 

At the time of publication, TheStreet Pro Portfolio was long AAPL, QCOM.