It's GS's conviction buy a month ago. Opportunity or value trap?

Goldman Sachs adds Apple (NASDAQ: AAPL) to its Conviction Buy List with a price target of $163.

Analyst Simona Jankowski noted that Apple stock trades at a 30 percent discount to the S&P 500 multiple.

Jankowski also sees the market shift its focus over the next year from hardware growth to installed base monetization and recurring revenue. The analyst sees Apple with a "significant opportunity" over the next few years to increase its monetization potential given its 500 million iPhone user base.

UPDATE - With the 500 million user base, Jankowski noted the following opportunities to increase monetization:

1. increased attach of services such as TV, Music, and Pay; and
2. increased attach of additional hardware such as Mac, iPad and Watch.

Jankowski notes, In a recurring revenue framework, we have constructed an average revenue per user (ARPU) metric that captures the installment plan pricing of the iPhone ($32/month), assumed installment plans for the other hardware products, and services (e.g. Music at $10/mo, TV at $40/mo). We calculate a current ARPU of $42/mo per iPhone user, pro rata for the current adoption rates of Mac, iPad, Watch, and services. The theoretical ARPU (assuming every iPhone user has all other Apple hardware products and services) is $153/mo, implying significant growth as the adoption of Apple hardware and services increases within the user base.

The big catalyst for Jankowski is Apple TV service. The analyst comments: The $100bn Pay-TV industry in the US is ripe for disruption – a trend that accelerated over the summer. TV ratings, which tend to be a leading indicator for TV subscriber growth, are falling (Exhibits 10-11), TV ad spending is declining (Exhibit 12), and subscribers are cutting the cord at an accelerating pace (Exhibit 13). The trend toward cord cutting and over-thetop (OTT) media consumption is reinforced as millennials enter their household formation years, and we expect it to accelerate as more over-the-top TV services (referred to as “skinny” bundles as they have fewer channel than traditional Pay-TV packages) become available. This year, we saw skinny TV bundles launch from Dish (Sling TV) and Sony (Vue), and a potential launch by Apple next year may help fill the vacuum created by the decline in traditional pay TV subscribers.

Two notable catalysts for upside growth also include the iPhone 6c and iPhone 7. Jankowski notes recent blog posts that the iPhone 7could launch in July or July next year, which would be earlier than a typical September launch. The iPhone 6c is also expected to be a smaller form-factor device and that could also launch mid-year 2016.