Time flies when you're having fun - and the world of high tech is always exciting. Nearly eight months ago, Apple (AAPL) released its new iPhone 5. In almost every way - from its screen to its processor - it was a much better device than its predecessor, the iPhone 4S. Now, while there was mass hysteria ramping into the launch of this device, driving the share price to new highs, the actual launch proved disappointing. Of course, margin worries, market share loss concerns, and a rather dramatic shift in sentiment have sent shares tumbling from those bubble highs, but Apple still remains the most valuable publicly traded company. Now, just days ahead of Apple's developer conference, is it time to pick up shares (or calls) to catch a sentiment-reversal wave?
Sentiment About Product Launches Is Pretty Bad...
Anybody who bought into the iPhone 5 launch, or the iPad 4/iPad mini launches was very likely sorely disappointed, with shares plummeting shortly thereafter. This probably left a very sour taste in investors' mouths, and as a result, there may not be particularly frenzied buying ahead of the conference - in fact, some may be fearfully selling in case iOS 7 gets criticized, or the new MacBooks don't have some "revolutionary" feature. In short, ahead of what is likely to be a very interesting (and profitable) refresh, I'm not entirely convinced investors are on board.
That's what creates the opportunity. While on a long-term basis, I certainly see some very difficult challenges ahead for Apple (and this is not a recommendation to "buy and hold" for an extended period of time), particularly given the commoditization of the smartphone/tablet businesses, in the near term, I think that a successful launch of new Mac products, coupled with a teaser of iOS 7 could turn investor sentiment positive - at the very least in the near term - which could make shares at these levels attractive.
The Trade Is Backed By Apple
One element that gives me further confidence in going long ahead of Apple's developers conference is that the share price is backed by an extremely large buyback program; that is, at least until Apple's $50B buyback cannon is fully depleted, there should be a rather hard floor on Apple at about the $420 level. This buyback is supplemented by a pretty decent dividend as a psychological "safety net".
I do rather like that Apple is now very shareholder friendly with its buybacks and dividends, and I do think that Apple's CFO and CEO don't get enough credit for being much more friendly to shareholders than it was under the Steve Jobs regime. While I do believe that if Apple's share price were still on a monster uptrend that this dividend and buyback would not have happened, the drop at the very least instilled some humility into the top brass, and led to some very good capital allocation policies.
In short, the Apple buyback and the dividend put in nice safety nets to limit downside in case the trade doesn't work.
If you're looking for a trade idea, perhaps consider buying Apple ahead of WWDC and hanging on to see the media/analyst reaction. I suspect that the near-term bearishness will probably subside if Apple puts on a good show, and as a result, a move to $500 over the next month or so may not be unrealistic, which would represent a nice 13.6% gain from the current $438 level. Downside seems capped to the strong ~$420 support level, which suggests a pretty decent risk/reward.