Apple's New iPhones: Should You Buy The Rumor And Sell The News?

| About: Apple Inc. (AAPL)

It appears that Apple (NASDAQ:AAPL) will announce its latest iPhone or iPhones on Tuesday, September 10. It is widely "known" that there will be an update to the iPhone 5, probably called the 5S, that should have a faster processor, upgraded camera and potentially a fingerprint reader in the home button.

The two biggest wildcards in the announcement are a partnership with China Mobile (NYSE:CHL) and the availability of a lower priced iPhone called the 5C. From a combination of all the leaks on the 5C and from people I have talked to in the industry I believe there will be a mid-priced phone but am not certain that it will be announced on September 10.

With the stock down about 28% from its all time high hit on September 21, 2012, the day that the iPhone 5 became available, I have assembled an analysis of all the iPhone announcements to determine if you should buy the rumor and sell the news. Especially since the shares are up 11% since the rumor hit on August 10 that the iPhone announcement will be on September 10.

I have assembled a chart that includes Apple's and the S&P 500's prices for one month prior to each iPhones announcement, the day of the announcement, the day that the iPhone was released and one month after the release.

There are multiple observations. The first is you probably need to ignore the first iPhone. It was a completely new product and there was a five and a half month lag between the announcement and release date.

The two best stock performances one month post release were the 3GS, up 18%, and the 4, up 10%. In both of those timeframes Apple's stock significantly outperformed the S&P 500, up 1% and flat, respectively.

In three of the last four iPhone announcements the stock has been higher on the announcement day vs. one month prior (up 11%, up 6% and 8%) and in the fourth it was lower by less than 1%.

In the last three iPhone announcements the stock has closed lower one month after the release than on the day of the release down 4%, 10% and 9%.

Potentially the most important comparisons are the latest two iPhone announcements, the 4S and 5, where Apple's stock only increased 1% and 2% at the date one month post release compared to the price one month prior to the announcement. I believe these are probably the most relevant since the feature and functionality of the iPhone had leveled off from prior iPhones.

One of the challenges in this analysis is that there are different background scenarios with each one. During the iPhone 4S timeframe Steve Jobs passed away on October 5, 2011, which could have caused the stock to underperform. In the case of the iPhone 5 the stock had a significant run-up and the expectations were extremely high for the shares. The shares peaked on the September, 21, 2012, the day of its release and have only recently started to recover to any significant degree.

Announce -1 mth Announced Released Released +1 mth
iPhone Jan. 9, '07 June 29, '07
Apple price $88.26 $92.57 $122.04 $141.43
% from announce 5% 38% 60%
S&P 500 1,409.84 1,412.11 1,503.35 1,473.91
% from announce 0% 7% 5%
iPhone 3G June 9, '08 July 11, '08
Apple price $183.45 $181.61 $172.58 $173.56
% from announce (1)% (6)% (5)%
S&P 500 1,388.28 1,361.78 1,239.49 1,305.32
% from announce (2)% (11)% (6)%
iPhone 3GS June 8, 09 June '19, '09
Apple price $129.19 $143.85 $139.48 $152.91
% from announce 11% 8% 18%
S&P 500 929.23 939.14 921.23 940.38
% from announce 1% (1)% 1%
iPhone 4 June 7, '10 June 24,'10
Apple price $235.86 $250.94 $269.00 $259.28
% from announce 6% 14% 10%
S&P 500 1,110.88 1,050.47 1,073.69 1,115.01
% from announce (5)% (3)% 0%
iPhone 4S Oct. 4, '11 Oct. 14, '11
Apple price $374.05 $372.50 $422.00 $379.26
% from announce (0)% 13% 1%
S&P 500 1,173.97 1,123.95 1,224.58 1,251.78
% from announce (4)% 4% 7%
iPhone 5 Sept. 12, '12 Sept. 21, '12
Apple price $621.70 $669.79 $700.09 $634.03
% from announce 8% 13% 2%
S&P 500 1,405.87 1,436.56 1,460.15 1,433.82
% from announce 2% 4% 2%
iPhone 5S/5C Sept. 10, '13 Sept. 20. 13
Apple price $454.45
% from announce
S&P 500 1,691.42
% from announce

With the stock up 11% from August 10, one month before the rumored September 10 announcement, a lot of the initial impact could to have been captured. However there seems to be a change in sentiment and with the potential of a mid-priced iPhone and China Mobile becoming an official carrier I would expect the shares to at least hold in the high $400's to low $500's until September 10.

Post announcement the share price will be driven by a China Mobile partnership and what price and what counties carry an iPhone 5C. If only one is announced the shares can probably hold in the low $500's. If both are announced the stock should further rally and if neither is announced the stock will probably pull back into the mid-$400's.

Disclosure: I am long AAPL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Sand Hill Insights and Chuck Jones is not a registered investment advisor or broker/dealer. Readers are advised that the material contained herein should be used solely for informational purposes. Sand Hill Insights does not purport to tell or suggest which investment securities readers should buy or sell. Readers should conduct their own research and due diligence and obtain professional advice before making investment decision. Sand Hill Insights will not be liable for any loss or damage caused by information obtained in our materials. Readers are solely responsible for their own investment decisions.

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