What's in Apple's Future?
Palwasha is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Fellow blogger Douglas Ehrman, on Thursday, evoked the wrath of many Apple loyalists with his post on Apple's (NASDAQ: AAPL) new iPhone 5. As he put it, “the phone is an improvement on the last one but not a leap forward.” I couldn't agree more.
However, my disagreement is with the misleading title that read “iPhone 5 opens doors for competitors.” First, it is the leader; that opens doors to followers. It is counter intuitive to say that Apple's iPhone 5 that followed competitor Samsung's Galaxy SIII, HTC's One X, or Nokia's (NYSE: NOK) Lumia 920 opened doors on competition. The doors had already been opened much before the latest Apple phone's arrival. iPhone 5 could be a result of competition not the cause of it, although you could call the first installment of iPhone as being the force behind competition in the smartphone world today.
Second, with the lawsuit that it won against Samsung, Apple instead attempted to close doors to future competition. The lawsuit scared away competitors giving Apple an uncanny monopoly over “rectangular smartphones with rounded corners.” Technically, if Apple has opened any doors on others, it's the doors to innovation (which, by the way, it has closed on itself). In the wake of the threat that Apple posed, its competitors were forced to innovate or else go extinct. This is why we were able to see some positive surprises coming out of Nokia's new phone Lumia 920 in the form of the wireless charger, fatboy, and the interesting PureView camera feature. Some positive surprises expected from Samsung in the year to come are its foldable/flipable smartphones and tablets made out of tempered plastic that will be likely be lighter in weight and unlike anything Apple has so far released. Since Apple decided to capitalize on its existing technology, it failed to produce any significant positive surprises this year.
Some interesting facts I couldn't help noticing
Let's revisit iPhones' release history and see how the market has reacted to iPhone releases in the past.
|Release Date||Pre-release Price||Post-release Price||Price range next 2 months|
|iPhone||Jan 9, 2007||$85.47||$92.57||$83-$91|
|iPhone 3G||Jun 9, 2008||$185.64||$181.61||$153-$179|
|iPhone 3GS||Jun 8, 2009||$144.67||$143.74||$134-$166|
|iPhone 4||Jun 24, 2010||$270.97||$269||$242-$274|
|iPhone 4S||Oct 4, 2011||$374.6||$372.5||$363-$422|
|iPhone 5||Sep 12, 2012||$660.59||$669.79||$696*|
*price at the the time this article was written
Barring the first iPhone and the latest one, a day after every iPhone's release, the stock dips. For the following two months, the stock sees great fluctuations, rarely touching new highs on 1-2 of next 60 days and otherwise closing most of times near its lows. Bear in mind that this trend was witnessed despite the fact that each of the preceding iPhones came out with positive surprises for the tech market. Contrast the stock's behaviour post-iPad-releases. Post-release price was always above the pre-release price. The stock closed near its lows less of the times and mostly traded near its highs.
|Release Date||Pre-release Price||Post-release Price||Price range following 2 months|
|iPad||Jan 27, 2010||$205.94||$207.88||$192-$270|
|iPad 2||Mar 2, 2011||$349.31||$352.12||$327-$360|
|iPad 3||Mar 7, 2012||$530.26||$530.69||$530-$636|
Overall, iPad announcements were met with greater market optimism than iPhone announcements, although iPhone sales continue to beat iPad sales. As of the latest quarter, iPhones contributed almost 47% to Apple's total revenues. In other words, stock movements were positively tied to iPad releases but not so much with iPhones, in spite of the fact that iPhones are Apple's strongest product.
Another thing that's interesting is that we knew beforehand that the 12th September press conference will be revealing the new iPhone 5. We knew weeks to months ago that the new iPhone will be bigger and thinner than its predecessor. We also knew that it will support 4G LTE and will run on iOS 6. We won't be wrong to assume that all that news was already priced in the stock. Yet, this time, the stock is flying post-release, with no positive surprises. This is probably the perfect refutation of our traditional efficient market hypothesis that elicits a rational behavior from investors--which brings us to the question whether this price surge is coming from investors buying or traders having their day on the stock market.
The Theory of Apple's Stock Price Movement
Here's a theory that could predict Apple stock's future price movements. Remember, this is a theory not a law (disagreements are welcomed in the comments section below).
If the stock went down, down, down after positive surprises, before picking up upward momentum, then the stock should go up, up, up after no positive surprises, before heading for a downturn. In other words, if the stock is going up, up right now, could it be that we'll see a slump in coming future?
Fact of the matter is, I confess and so will many others, that I've loved Apple as a company under Steve Job's leadership and I've loved Apple as a great stock investment under Tim Cook's reign. Just before Steve Jobs left us on 5th October, 2011, the highest the stock had ever traded was earlier that same week at $413. The 65% stock appreciation from $413 to $682 came under Tim Cook's CEO-ship. So the idea that 'Apple is now an ordinary tech company with Steve Jobs gone' may be true when you take Apple as a company but Apple as an investment has been better off with Steve Jobs gone. Harsh, but true!
Important considerations for future stock price movements
1. It's confirmed. QE3 is coming. Fed has started purchasing securities from the market and that means we'll soon witness inflation and price surges at the stock market.
2. Despite the fact that the new iPhone lacked the 'wow' factor, sales from the iPhone 5 alone are expected to boost US GDP by a huge 0.5%. That 0.5% really is huge when the total GDP growth stands at 2%. The news is a definite buy signal, especially coming from JP Morgan.
3. iPhone 5 may not be as attractive to tech junkies as other phones with better specs that lately came out, but within just two days of its release we're hearing that it's sold out on pre-orders.
4. Analysts are setting price targets of $750+ for the tech giant. Community sentiments are generally also very bullish with only 1.5% of the float short (although this 1.5% was reached only yesterday following a surge in short interest of 2.3%).
The Macroeconomic environment is in favor of Apple's stock (or for that matter, all stocks). If you are a short-sighted investor, the stock will likely go up so hold on to it. If you are long term Buffett-style value investor then this stock may not be the apt pick for you since it has only recently paid its first dividend and will take some time to build a strong dividend stream. If you are a growth investor then you might want to question whether you want to hold this stock for another, at least, 5 years. The stock has an erratic price pattern and, as seen above, is very unpredictable. With competition creeping in from the back, front and side doors, the tech market might be reaching its saturation point. Plus, when they say 'Steve Jobs is gone', take it seriously--especially after the latest press conference. The plan that he had laid out for Apple (iPhone 5 and Apple TV) will soon require updates. You need to question yourself whether you are ready to bet on Tim Cook's leadership. Invest wisely!
PalwashaS has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple. Motley Fool newsletter services recommend Apple and Nokia. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.