Morgan Stanley’s Katy Huberty has added AAPL to its Best Ideas list of investments, saying that increased margins from iPhone 6 sales see the stock “set for significant upside.”

While Credit Suisse had earlier suggested that margins on the iPhone 6 would be lower than that of the iPhone 5s and 5c, Huberty says that numerous sources are suggesting that more people this time are opting for the middle storage tier, thus pushing up both average selling price and margins …

Both Credit Suisse and Morgan Stanley agree that the iPhone 6 Plus offers significantly higher margins due to rather small differences in manufacturing costs between the two models.

If Morgan Stanley is right, it’s likely that Apple’s decision to switch the storage tiers from 16/32/64GB to 16/64/128GB has paid off – the large difference in storage persuading people to hand over the extra $100 for the new middle tier. Business Insider published the detailed charts explaining the analyst’s reasoning (below).

Huberty also believes that margins on the Apple Watch will be closer to the 40-50% range of the iPhone than the 20-30% margin on the iPad, providing another reason to be optimistic about Apple’s future financials.

Katy Huberty is not alone in believing AAPL to be undervalued: major investor Carl Icahn recently suggested that the company should be trading at around twice its current share price, valuing Apple Inc at close to a trillion dollars.

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