After being a market laggard for some nine months, Apple (AAPL) seems like it has turned a corner and has easily outperformed the market over the last three months (See Chart).
I believe the giant from Cupertino is currently at a similar inflection point. Luckily for investors, this time it appears that the months ahead will bring continued outperformance and the shares are offering an attractive entry point. There are four key catalysts that should drive significant capital appreciation through at least the end of the year.
Catalyst #1 - Successful launch of the new 5C & 5S iPhones
Obviously the biggest catalyst in the months ahead will be driven by the successful launch of the new versions of the company's iconic iPhone franchise. First weekend sales came in at 9mm units, vastly exceeding consensus estimates that were calling for 5mm to 6mm device sales over the first weekend of these critical launches.
The company has already provided positive Q4 guidance saying margins & revenue will be on the high end of its previous forecast. Already market research firm Kantar Worldpanel has come out and stated these new phones are driving market share gains for Apple in the United States, Europe & Japan. Look for earnings estimates to be raised throughout the quarter as these new phones continue to sell at a better than expected pace.
Catalyst #2 - The growing presence of Carl Icahn
Noted multi-billionaire activist Carl Icahn is developing into a growing presence for Apple. He met with Apple's CEO, Tim Cook, for dinner earlier this week to push for a $150B stock repurchase plan. One nice thing about Mr. Icahn, he always keeps his demands modest.
Although the chances are slim that Apple will approve an additional buyback program near the levels Mr. Icahn is pushing for, it is not out of the realm of possibility that it could substantially lift its $60B stock repurchase authorization levels.
The company bought back an impressive $18B of its stock in its last reported quarter and should have at least $50B in free cash flow in the coming year in addition to its already existing ~$140B hoard of cash & marketable securities. Carl Icahn and Tim Cook plan to meet in again in ~3 weeks. I think this continued "conversation" will yield additional shareholder friendly moves (Additional dividend hikes and/or stock repurchases) in the medium term. This will certainly a positive for the stock.
Catalyst #3 - A pending deal with China Mobile
Another huge near term catalyst will be when Apple officially signs a deal with China Mobile (CHL) and its 740mm subscribers. One of the positives that was overlooked by most investors with the launch of the 5C/5S was the company signed a similar deal with NTT Docomo (DCM) and its 60mm high end customers.
A deal with China Mobile would be an even bigger positive for the stock. All the signs for a deal are there. China Mobile's management has made several positive comments towards a deal recently, they are spending over $7B this year to build out their 4G network and Apple has told its main Chinese manufacturer to add China Mobile to its official list of carriers.
This deal makes too much sense for both companies to not get done in the end. It will give Apple a huge new presence in one of its most important long term markets and China Mobile needs the extra data traffic and revenue that will come by being able to offer iPhones to its huge subscriber base. Look for a deal to be announced sometime in the fourth quarter.
Catalyst #4 - Sentiment on the stock is turning
Noted value manager Bill Miller was on CNBC the other day. He called buying Apple as these levels "The biggest no-brainer in history." Now that the new iPhones have had a successful launch, Icahn has bought a significant stake in the company and is pushing for additional shareholder friendly moves, and Apple is again gaining market share in its core markets; has anybody noticed that there are few if any of the myriad "Has Apple lost its mojo?" stories that were so prevalent during the stock's decline?
This changing sentiment is the fourth positive catalyst for the stock going forward. Look for more positive comments from analysts and managers as well as price target hikes from major analyst firms in the fourth quarter.
In summary, Apple looks like it is at a positive inflection point and has numerous positive catalysts to drive outperformance in the months ahead. At ~8x forward earnings after accounting for the company's huge cash hoard, the shares are too cheap. STRONG BUY