2013 was not the best year to be an Apple (NASDAQ:AAPL) investor. Overall, the stock only gained 2.18 % which is a measly return (not considering dividends) compared to the Nasdaq Composite, which in the same period gained 34.20%. Last year's poor performance could be a concern for some investors who might feel compelled to part with their shares. If you are thinking about doing so, you should think again. 2014 could be the year where Apple investors are rewarded for their patience. As the following data will show, three major catalysts could drive the stock higher.
Announcement of Q1 results
Apple is expected to release its Q1 results (fourth calendar quarter) January 27th. In Q4 (third calendar quarter), the company had its most successful launch of a new iPhone to date. If that tendency continued in Q1 and sales turn out to be better than expected, investors could find themselves reaping the rewards of their patience as the stock price surges. Furthermore, Apple also released iPad Air and a new iPad Mini, which undoubtedly found its way under many Christmas trees last year. Mac sales could also be a source of surprise, especially when compared to the same quarter of FY2012.
Apple had provided the following guidance for its fiscal 2014 first quarter:
- Revenue between $55 billion and $58 billion
- Gross margin between 36.5% and 37.5%
- Operating expenses between $4.4 billion and $4.5 billion
- Other income/(expense) of $200 million
- Tax rate of 26.25%
I believe that the successful sale of the new iPhone(s) continued in Q1 and that the new iPad(s) will surpass sale estimates. All this points to a pleasant surprise for investors, or at least a result in the higher end of the revenue guidance. Mac sales could add to this surprise but should be considered a wild card at this point.
If you have plans to part with your Apple shares due to poor performance or if you for some other reason must sell, I would recommend waiting until the end of this month before you make your move.
The launch of iPhone on China Mobile's network
The agreement between Apple and China Mobile (NYSE:CHL) is of immense strategic value to Apple, and this has yet to be reflected in the stock price. China Mobile is the world's largest mobile company with 760 million subscribers, who will all be able to buy the iPhone from January 17. The Chinese market is huge, but also challenging. It will be interesting to follow iPhone sales in the coming quarters and see how well (or badly) Apple is faring. According to this article, analysts estimate that the company could sell as many as 39 million iPhones in China this year, which is impressive when compared to the nearly 34 million iPhones sold worldwide in Q4. Although no one knows how well this venture will turn out, it could be a catalyst for the stock if things work out better than expected. The recently released preorder numbers for iPhones from China Mobile suggests that China could be a significant growth market for Apple in 2014.
The deal with China Mobile will have to prove its worth before it is reflected fully in the stock price. Investors should form their own opinion about the potential of the agreement, as their judgment is more than likely to be just as good (or better) than that of the average analyst.
New products in 2014
This is probably my main reason (except for attractive valuations) to hold the Apple stock in 2014. No other company in the world can boast of Apple's ability to generate press coverage about new products. The months leading up to a new "We've-got-something-to-show-you"-event are filled with rumors, speculations, and excitement. This year, Apple is expected to release updated versions of several key products such as iPhone, iPad, Mac, etc. This is business as usual and completely expected. Several hints and statements have been given about Apple entering a new product category (as well described in this article). The rumors mainly revolve around an "iWatch" and/or a new TV. Whether these are true or not will not be discussed further in this article, as this would be unfounded speculation. Investors should, however, take the possibility of a new product category into account.
Consider the following two scenarios: 1) Apple announces a new product category and 2) No new product category announcements are made. If no new announcements are made, then a short-term drop in the stock price would be more than likely. This is exactly what happened following last year's event in September, where the stock price tumbled from $506 to $450 (September 9th-16th), only to correct itself to $490 (September 23rd). This would be a minor offset to an investor who is long Apple. When considering the other scenario, which is the announcement of a new product category, only a positive response seems likely from the market, which will drive the stock price higher. In both the scenarios, investors have very little to lose and much to gain. An announcement of a new product category could be the end of Apple's attractive valuation, which means that current investors should not sell just yet and future investors should get on board before September 2014.
2014 could become the year where Apple investors are rewarded for their patience through 2013. Unless you bought the stock mid-2013, the total return last year was awful. This year, Apple has at least three catalysts that could provide investors with a satisfactory return. Investors should form their own opinion about the mentioned catalysts as well as the company (qualitative analysis) and stock (quantitative analysis) as a whole before considering parting with - or acquiring - the stock. For an excellent security analysis of Apple, including the current valuation, please refer to the following articles by Mycroft Psaras here on SA:
Article 1: The Metric That Favors Apple Over Google
Article 2: Why I Continue To Invest In Apple
What do you think? Do you see any other catalyst for Apple in 2014? If not, what is your opinion about the catalysts mentioned in this article?
Disclosure: I am long AAPL, and have no intention to sell within the next 72 hours. 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.