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On October 15, 2013 Apple, Inc. (AAPL) sent out press invitations for an October 22 event to be held in San Francisco under the heading: "We still have a lot to cover". Rumors of such event started circulating prior to the release of the invitations, with Apple stock appreciating by 3.7% from $480.94 on October 8, 2013 to $498.68 on October 15, 2013.

For the event held on September 10, 2013 for the launch of the iPhone 5c, iPhone 5s and iOS7, Apple shares increased by 3.6% from one week prior to the sending of the invitations (whereby the invitations were sent out on September 3, 2013) to September 9, 2013, the day prior to the event. Yet, Apple shares reversed course and dropped by 11.1% in the week following the event, from $506.17 on September 9, 2013 to $450.12 on September 16, 2013. Will Apple shares reverse course again and drop following the October 22 event?


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Source: Yahoo Finance

During the past 5 years there have been about 16 official Apple events, 6 of which included iPhone launches while 4 of which included iPad launches.

Apple events 2008 - 2013
Event

Invitation Date

Event Date

Headline

Relevant Products

1 10/15/13 10/22/13 "We still have a lot to cover" Not Confirmed
2 09/03/13 9/10/13 "This should brighten everyone's day" iOS7, iPhone 5c, iPhone 5s
3 10/16/12 10/23/12 "We've got a little more to show you" MacBook Pro, 8th gen iMacs, iBooks 3, 4th gen iPad, iPad mini
4 09/04/12 09/12/12 "It's almost here" iPhone 5, iOS 6, 5th gen iPod touch, 7th gen iPod nano
5 02/28/12 03/07/12 "We have something you really have to see. And touch" iPad, 3rd gen iTV, iOS 5.1, iPhoto for iPad and iPhone
6 01/12/12 01/19/12 "Join us for an education announcement in the Big Apple" iBooks Author for Mac, iBooks 2, iTunes U app for iPad
7 09/27/11 10/04/11 "Let's talk iPhone" iPhone 4S, iOS 5, iCloud, Siri
8 02/22/11 03/02/11 "Come see what 2011 will be the year of" iPad 2, iOS 4.3, GarageBand and iMovie for iPad
9 10/13/10 10/20/10 "Back to the Mac" iLife 11, FaceTime on Mac (beta), Mac OS X Lion, Mac App Store, 2nd gen Macbook Air
10 08/25/10 09/01/10 no headline - image of guitar iOS 4.1, iOS 4.2 Preview, 4th gen Shuffle, 6th gen nano, 4th gen iPod touch, 2nd gen iTV, iTunes 10 with Ping
11 04/05/10 04/08/10 "Get a sneak peek into the features of iPhone 4.0" iPhone 4.0
12 01/18/10 01/27/10 "Come see our latest creation" iPad, iPad SDK
13 08/31/09 09/09/09 "It's only rock and roll, but we like it" iTunes 9, iPhone 3.1, 5th gen iPod nano, 3rd gen iPod touch, additional iPod Shuffle colors.
14 10/09/08 10/14/08 "The spotlight turns to notebooks" Nvidia (NVDA) GeForce 9500 MacBook Pro, Nvidia GeForce 9400 Air, MacBook, 24" Display.
15 09/02/08 09/09/08 "Let's rock" 4th gen iPod nano, 2nd gen iPod touch, iTunes 8, HD TV shows
16 02/27/08 03/06/08

"Please join us to learn about the iPhone software roadmap, including the iPhone SDK and some exciting new enterprise features"

iPhone SDK, iPhone 2.0 and App Store

Source: AAPL Investors.net

We examined Apple stock price movement surrounding the above events, from one week prior to the invitation date to one week following the actual event, as well as 90 days following the event. When examining all events relating to iPhone, iPad as well as other products, Apple stock price appreciated on 8 occasions out of 15 in the week leading to the event (averaging +0.21% for all), 9 out of 15 occasions for the week following the event (averaging -0.7% for all), and 9 out of 14 occasions for the 90 days following the event (averaging +6.42%). Given such results, it is clear that there is no conclusive effect by such events on Apple stock price, although one can possibly claim that such effect is more pronounced for the 90 days period.

Apple stock price change surrounding events 2008 - 2013
Event 1 week before invitation to 1 day before event 1 day before event to 1 week thereafter 1 day before event to 90 days thereafter
1 Event Not Held Yet Event Not Held Yet Event Not Held Yet
2 +3.6% -11.07% Date not reached
3 -0.29% -6.11% -20.78%
4 -2.11% +6.26% -19.43%
5 +2.99% +7.14% +6.26%
6 +2.65% +4.09% +42.09%
7 -9.4% +3.79% +8.11%
8 -2.94% +1.85% -3.41%
9 +7.02% -0.47% +12.6%
10 -3.94% +6.05% +30.34%
11 +3.54% +2.12% +3.34%
12 -1.98% -4.9% +30.86%
13 +2.29% +1.29% +9.26%
14 +10.15% -10.72% -17.85%
15 -9.05% -11.12% -40.48%
16 +0.54% +1.24% +48.91%
Average +0.21% -0.70% +6.42%

Source: values calculated from data provided by Yahoo Finance

When we isolate iPhone events (2,4,7,11,13,16) , Apple stock appreciated in 4 out 6 events in the week leading to the event (averaging -0.26% for all), 5 out of 6 occasions for the week following the event (averaging +0.6% for all), and 4 out of 5 occasions for the 90 days following the event (averaging +10.04%).

When we isolate iPad events (3,5,8,12), Apple stock appreciated in 1 out 4 events in the week leading to the event (averaging -0.55% for all), 2 out of 4 occasions for the week following the event (averaging -2.24% for all), and 2 out of 4 occasions for the 90 days following the event (averaging +0.25%).

Although past performance is no indication for future performance, it does seem that Apple stock performs well around iPhone events, with the exception of last year, while there is nothing conclusive for iPad events. Apple provides a breakdown of its revenues by product, but it does not provide such breakdown for its profits.


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Source: SER

However, in an article we published on October 11, 2013 "Apple tastes better by the slice", we determined that Apple generates about 65.3% of its profits from the iPhone, while it generates about 22.4% of its profits from the iPad. Hence, an event for a successful iPhone launch is likely to dominate and trump other products. Given Apple's recent successful event for the launch of the iPhone 5c and iPhone 5s, and our outlook for related profits to exceed analysts' estimates as per our article of October 15, 2013 "4 suppliers and an ETF set for Apple boost", we believe it is unlikely that Apple stock will experience a sustainable drop, if at all, following the upcoming October 22, 2013 event.

Riding on the tail of the success of the iPhone 5c and 5s launch, a successful upcoming event will provide further boost to Apple shares. To such effect it is important to examine what is expected from such event. According to Apple Insider, Apple is expected to launch a thinner, lighter fifth generation iPad, featuring the high end A7 64 bit processor. In addition, Apple is expected to announce its second generation iPad mini, with Retina display screen, new Mac Pro desktop computer, Mac OS X 10.9 "Mavericks", and possibly other products. Most importantly, an A7 powered iPad, providing greater performance and enhanced games experience, could result in a substantial number of customers upgrading to the latest iPad.

So will Apple drop after the upcoming October 22 event? We believe it is highly unlikely, while we believe Apple shares are likely to build on their current momentum, moving higher during the next 3 months. Apple's fundamental valuation remains strong with an adjusted forward price/earnings ratio of 7.74 (excluding cash and long term investments), and a 3-year average revenue growth rate of 53.9% vs. an industry average of about 19.1%. With further support from the introduction of several new products at the upcoming event, in addition to the iPhone 5c and iPhone 5s, there is a very good likelihood Apple's actual earnings for the quarter ending December 2013 will exceed current analysts' estimates of $13.79 per share by a good margin.

It is also important to note that the above fundamentals are also well supported by Apple's recent price action. As per chart below, Apple stock price had been on a continuous downtrend from October 2012 to April 2013, as indicated by label 1. Apple then established a double bottom at around $390 between April and July 2013, as illustrated in label 2, and then proceeded on an uptrend as illustrated by label 3. Such uptrend has been getting crowded by resistance at the $500 price level, as represented by the line labeled 4. As a result, Apple's price movements have become constrained within such space, and in case of a clear breach of such resistance, Apple shares can move substantially higher, reversing the downtrend represented by line 1. We don't typically write much about similar technical factors, as we believe it is important to pay attention to fundamentals. However, when both fundamentals and technicals meet, then we feel it is important for us to point out such fact.


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Vanguard information technology ETF

Investors who share our view can buy Apple shares on an outright basis, or in case of an interest in limiting potential downside risk, possibly buy Apple calls such as those expiring April 2014 with a strike price of $530 for a premium of about $26.

On the other hand, the Vanguard information technology ETF (VGT) is currently heavily weighted in Apple shares, with about 13.3% of its $4.06 billion in assets invested in Apple shares as of September 30, 2013. The fund is up 18.46% year-to-date from $69.11 on December 31, 2012 to $81.87 on October 15, 2013. Furthermore, the fund also carries in its top 10 holdings Facebook (FB), Qualcomm (QCOM) and International Business Machines (IBM), all of which have been the subject of past articles we published also recommending such stocks.

Conclusion

It is unlikely Apple shares will drop following the October 22 event, and in case there is such drop, we expect it to be short lived as we expect Apple shares to move higher during the next 3 months. Such move higher would be supported by favorable valuations for Apple shares, a strong new product line, as well as recent positive price action. Investors who share our view can either buy the Vanguard information technology ETF which is heavily weighted in Apple, or Apple call options, or simply buy Apple shares on an outright basis.

Source: Will Apple Drop After Oct. 22 Event?