4 Catalysts That Could Reignite Apple in 2013
Robert is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Ok. I may not be the first person to point this out, but Apple (NASDAQ: AAPL) is pretty cheap at 10 times trailing earnings. But a low P/E ratio isn’t enough. Investors must identify a potential catalyst to justify a higher multiple. Apple needs to dangle something new and shiny in front of analysts to get them excited about the stock again.
Fortunately, Apple has several potential catalysts in every quarter of 2013 that can drive its share price higher.
Spring Dividend Hike
In its most recent quarterly earnings, Apple reported that its cash pile reached a record $137.1 billion. Currently, the company pays a $2.65-a-share quarterly dividend, with the stock yielding about 2.4%.
Many analysts believe the company could hike its dividend in April. Conceivably, Apple could double its payout with little impact on cash available to finance operations. If Apple were to shell out such a massive cash distribution, it would push the stock’s yield north of 4%. Like feeding candy to a child, any dividend hike would provide a quick sugar rush for Wall Street.
Summer Product Releases
Of course, a healthy diet requires more complex carbohydrates. Analysts want to see new products that can propel revenues and profits higher.
The company recently refreshed its product line, with modest updates expected in 2013, including new chips and software updates. These efforts will begin to appear in Apple’s first- and second-quarter financial results.
Rumor mills are buzzing about several upcoming handset releases:
iPhone 5S: Expected to be launched in June, the follow up to the iPhone 5 will feature multiple color options and be available in two different sizes.
Low-Cost iPhone: Ealier this month, the Wall Street Journal reported the Apple is preparing to release a cheaper version of the iPhone. The move would allow Apple to penetrate emerging markets where cheaper handsets are more prevalent.
iPhone Math: There’s also speculation that Apple is developing a new-larger screen smartphone which could be released in 2014. The new phone takes direct aim at the Samsung Galaxy featuring a larger 4.8-inch screen display.
Fall China Mobile Deal
Apple has struggled to gain a foothold in China primarly due to competition from Google's (NASDAQ: GOOG) Android operating system. While Android lost its No. 1 spot in the United States last month, the platform has dominated the Chinese smartphone market. Last year, sales of Android-powered devices increased 260% year over year. Android grew its market share by 19%, now accounts for 72% of all device sales in the country.
Why has the Android OS been so much more successful in China and other emerging markets? The platform's ad subsidy makes handsets significantly cheaper for price-sensitive customers in developing economies.
While it would appear as if nothing can stop the Android onslaught, a deal with China Mobile could reverse the iOS's market share slide by giving Apple access to a 700 million-subscriber base and up to 65% of Chinese smartphone customers.
Of course, the Apple/China Mobile deal faces challenges, which Foolish blogger Reuben Brewer detailed here. China Mobile is using its huge subscriber base as a negotiating ploy to grab a generous handset subsidy or a share of app revenues. But expectations are set pretty low for this deal’s outcome. If Tim Cook can negotiate a reasonable bargain, it could be a huge boost for the stock.
Winter OMG Product
The biggest criticism from analysts is no new ‘Oh My God’ product in Apple's pipeline. Management has remained tight-lipped about its R&D projects, but there are clues that something big is in the works.
Last year the Wall Street Journal reported that Apple was in negotiations with television service providers and content producers, suggesting that a new iTV is in development. More recently, reports have surfaced that Apple is working with Asian component suppliers to test parts for television sets. Industry analysts believe the iTV could revolutionize the television experience with a cloud-based DVR, social sharing features, and an icon-based user interface.
Foolish Bottom Line
Unfortunately, all of the above catalysts remain rumors and Apple shares will continue languish until management provides Wall Street greater clarity about the company's future.
Analysts need to see answers to the following two questions before the stock can gain traction: 1) How will Apple counter competitive threats from Google's Android OS and the Samsung Galaxy? 2) Does the company have something big in the product pipeline? While there are clues something positive is in the works, investors should look out for answers to these questions in upcoming quarters.
RobertBaillieul has no position in any stocks mentioned. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple and China Mobile. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!