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Summary

  • It is a fallacy to think that the Sept. 9th event will have a predictable effect on the stock price.
  • Apple's stock has risen from 2001 until now due to the sales of its 3 iDevices, not because of its media events.
  • There is no need to worry about any of Apple's devices, such as the iPod, failing. Apple is still one of the top leaders in its products' respective categories.

It is a given that the iPhone will have a "major" upgrade and that new products will be unveiled. One thing people will attempt is to profit quickly from the event. Let's be realistic. The only thing you will gain is huge volatility and a stomach ache should the price blip in a direction you were not expecting in a futile attempt to make a quick buck.

From 2001, until now, every Apple (NASDAQ:AAPL) event has done one thing to the price: absolutely nothing. A recent Yahoo article, claimed that if the event is a big hit the stock will surge through the end of the year. Announcements can't and will not cause a stock price to soar for extended periods of time. It just creates, unfortunately, unnecessary speculative behavior and volatility for a short period of time. Considering the event as a make it or break it for AAPL until the next one is as good as saying company performance does not matter.

It ignores the basic tenet that part of investing in a company is to bear the ups and downs because in the long run a stock will rise provided the company continues to sell more of its products. If AAPL never did announcements, I bet the stock price would have still trended upwards. All the announcements do is to gauge/hype product interest.

Historical Perspective:
Below is the chart of AAPL when it was solely focused on its computers from its inception to the end of December 2000. As you can see, for 20 years, the price did not really go beyond 5 dollars.

(click to enlarge)

(Source: Yahoo Finance)

From 2001 to currently, what has the trend of the stock been? Up.

(click to enlarge)

(Source: Yahoo Finance)

The announcements had nothing to do with the stock price's meteoric rise in such a small time span, it is the sales of these three products shown in the graph below that initially began with the iPod.

(Source: AAPLInvestors.net)

This graph starts each category off at their respective inception date. It will be misleading if you assume the all products had the same launch date. What this graph tells me is that overall revenues are high and the three products are selling very well. If you notice the decrease in the slope of the iPod line, you may think iPod sales are declining. That's not quite the story. The iPod is having some cannibalization from the iPhone sales. Does this mean the iPod is dead? Not quite.

People seem to forget that the iPod is in a different category from the iPhone. It is like trying to determine whether Usain Bolt is more fit compared Arnold Schwarzenegger (in his body-building days).

iPod is not the only device to receive a gloom and doom outlook. AAPL's other mainstays, the iPhone and iPad, are having similar prognostications. To see if each category is truly indeed failing, the best approach is to look at the devices performance in their respective markets.

iPod
With the iPod, AAPL still has 72% of the portable music player market even though the overall portable music player market has been cannibalized by smart phones by 33%.

According to AppleInsider, Steve Jobs once said, "if we don't cannibalize ourselves, someone else will." This brings an interesting take on the iPod. Apple will effectively know when to kill its iPod if and when the time comes.

For those of you still worried about the device's demise, here is a quote as early as 2003 of prognosticating the iPod failure:

"Apple Computer's tenuous hold on the portable audio-player market might soon fall thanks to a predictable foe, Dell, whose Dell Digital Jukebox (Dell DJ) is off to a strong start."

That was over 10 years ago. Looks like it was not as predictable as claimed.

iPad
I chose to look at vendors because I feel it is more accurate to see the actual hardware sales instead of what operating system has the lion's share of the market. The sales numbers don't lie and AAPL is still number one despite a marginal increase.

(click to enlarge)

(Source: TechCrunch)

It is projected that approximately 64% of American households will have a tablet by the end of 2014, which indicates there is still more sales growth for AAPL's iPads.

iPhone
Finally, here is a chart of smartphone sales by vendor.

(Source: Self-created using Gartner values)

Although AAPL is number two, notice the gap between second and third place. A 11% gap is still quite a feat. Sales have increased from the prior year. AAPL is still one of the market leaders, and the increase in sales for the iPhone shows that there is still demand for the product. Remember, other companies try to sell their products based on cost to consumer. AAPL tries to sell its products based on quality. With quality consumers will pay a premium.

Halo Effect
It's current CEO mentioned the "Halo effect", where a customer who buys one of AAPL's products will more than likely buy another product. The chart below shows how all three products contributed to an increase in sales for its iMac computers. As you can see, the iMacs got a huge boost in sales from the iPhone sales starting in 2007, thus the sales in one of AAPL's products clearly affect the sales of the other flagship products.

(click to enlarge)

(Source: AAPLInvestors.net)

Conclusion
The reason to go long AAPL is not because of some special event but because its products, both current and future, will continue to sell. You are better off grabbing a bowl of popcorn and watching the event rather than trying to market time it.

Source: Apple - September 9 Will Give You A Stomach Ache And Nothing More... Focus On Sales