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Why Apple Has Become a 'Bellwether' for 2014

NEW YORK (TheStreet) –– Apple (AAPL - Get Report) shares ticked higher after Barclays upgraded the stock to "overweight," after having downgraded the stock in April for the first time in a decade.

Barclays analyst Ben Reitzes upgraded shares, giving them a $110 price target, stating that his belief in Apple CEO Timothy D. Cook has returned, as Cook has "solidified his strategy and re-gained the confidence of Apple stakeholders in many ways -- reversing many of the warning signs we saw earlier in the year." He also noted that Samsung's recent weakness provides a buffer for Apple, and the pipeline into 2015 is so strong, that Reitzes and his team are "compelled to get on board even if its midway through the rebound trade."

Reitzes raised his June quarter estimates ahead of fiscal third-quarter earnings, as he believes the iPhone is likely to continue staying strong, following the massive iPhone number (47.3 million units shipped) last quarter. He expects Apple to earn $1.24 a share on $38.33 billion in revenue, with 37 million iPhone unit shipped for the quarter. He also raised fiscal 2014 iPhone unit sales to 172 million, and bumped fiscal 2015 iPhone unit sales to 197 million, including 61.5 million in the December quarter.

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Analysts surveyed by Thomson Reuters expect Apple to earn $1.22 per share on $37.87 billion in revenue, when it reports earnings July 23.

Shares of Apple were higher in early Monday trading, gaining 0.77% to $95.95.

Reitzes has compared Apple to Google's (GOOG) run in 2013, when Google shares were re-rated. Following a second-quarter earnings beat in the June 2012 quarter, as well as revenue acceleration, Google shares gained 94.4% from July 20, 2012 to Dec. 31, 2013. A similar appreciation appears happening with Apple.  "It is now clear to us that Apple may be merely in the middle of its 'Google-like' rerating since our new estimates have a similar y/y revenue acceleration starting in F3Q (380 Bps improvement from F2Q) and should continue over the next few quarters," Reitzes wrote in the note.

Aside from potentially stronger-than-expected earnings, Apple has a lot going for it, including a slew of new products and categories the company is looking to enter. Reitzes believes an Apple-branded smartwatch, dubbed the iWatch, could be launched later this year, with Nike (NKE) potentially as a major partner. If the company can sell 50 million iWatch units, that could equate to an additional $4 a share in earnings, not currently in the analysts' estimates.

In addition to the iWatch, an integration of mobile payments would be Apple's next big area of opportunity, leveraging the 800 million iTunes accounts and credit card information. On Apple's fiscal first-quarter earnings call, Cook mentioned that mobile payments is an area of intrigue for Apple, mentioning Touch ID, the company's finger-print technology in conjunction with it. "The mobile payments area in general is one that we've been intrigued with, and that was one of the thoughts behind Touch ID," Cook said on the earnings call.

Reitzes is also positive on the recent Beats Electronics deal announcement, viewing it in a very positive light "in terms of the talent acquired, like Jimmy Iovine, and the ability to sell more highly accretive accessories globally."

Apple is also expected to refresh the iPhone later this year, with Reitzes and many others expecting two versions, a 4.7-inch and a 5.5-inch version, dubbed the iPhone Air. The larger iPhone could be unveiled in November, potentially pushing back volume from late calendar 2014 into 2015. KGI Securities analyst Ming-Chi Kuo has recently stated in analysts' reports that the 5.5-inch iPhone could be delayed until later in 2014, as opposed to Apple's usual Sept. or early Oct. iPhone refresh.

With Apple shares having gained 18.8% year to date, Reitzes believes that Apple is now the market bellwether of 2014, just as Google was in 2013, and there is a must-own feeling for Apple right now. "We can't help feeling the right short-term analogy from a stock standpoint is to compare Apple of 2014 to Google of 2013 and acknowledge the market wants and needs to own this bellwether into the end of CY14 and into 1H15."

--Written by Chris Ciaccia in New York

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