Market trading in 2012 could not have gotten off to a better start. If the Dow being down 400 points in the first week of the year is the kiss of death as we described last week, than what does it mean if it’s up over 100? It means that January is ripe for an Apple run. Wednesday’s Apple follow through is leading the market after yesterday’s Dow +180 and Apple +$6. This is exactly the kind of action we were looking for as a confirmation to add exposure.
We have already gotten 9.5% of the 10.76% run to $420 that we forecast back on December 14th, but there is ample reason to believe that the stock can surpass those levels and beat the precedent averages. Especially in light of Wednesday’s press release announcing that iPhone 4S will debut in China and 21 other countries on Friday, January 13th. This launch date is ideal because it comes one week prior to the Chinese New Year on January 23rd. Holiday demand for iPhone 4S will shift from the rest of the world right into China. It’s a brilliant strategic move by Mr. Operations himself, CEO Tim Cook.
Any hedge fund actively trading Apple must take Chinese catalysts into account when determining strategy for 2012. Tim Cook’s statement from the most recent earnings call makes a compelling argument that China has become the most important variable for this stock. He said:
If you look at our Greater China revenue, it represented just 2% of Apple in our fiscal year ’09. And in the fiscal year we just ended, it accounted for 12%, and if you look at the quarter that we just ended, it accounted for 16%. So it’s our fasted growing major region by far. It delivered $4.5 billion of our revenue for the current quarter, and that’s up almost 4x or about 270% year-over-year. That brought the total revenue for the fiscal year to over $13 billion. And to further put that in context, a year ago in fiscal year ’10, we were just right above $3 billion. So it is growing at a feverish pace.
Will Chinese catalysts become a primary stock driver in 2012? The last two product launches in China were iPad 2 on May 6, 2011, and iPhone 4 on September 25, 2010. The Chinese iPad 2 launch was preceded by an Apple stock rally of 9.3% over 14 trading days. The iPhone 4 launch was preceded by 24.6% run that lasted 20 trading days beginning on August 27, 2010. I’m not suggesting that these Chinese launches were the only causes for the rallies, but sooner or later this variable does have legitimacy to propel the stock.
Apple has distribution deals with over 200 Mono-branded stores that serve as premium resellers in addition to the 6 Apple retail stores in China. There are now over 7,000 points of sale for the iPhone in Greater China. With this kind of presence Apple is perfectly positioned to reap the benefits of the rising middle class also known as the Chinese gold mine. Demand is so strong that gray-market vendors have been fetching $1,350 for the 4S 16GB and $1,774 for the 64GB.
The Apple trend is set to extrapolate in China. Profiting from Chinese catalysts in Apple is one of the topics at the 2012 Apple Investor Summit that I am especially excited about. Eric Jackson who is one of the most in tune Chinese money managers on Wall Street will be speaking along with Blaze Fabry, an experienced Chinese analyst who founded Chinavestor. Apple is positioned to strike Chinese gold and investors should educate themselves for the opportunity.
In terms of Apple price targets, as the stock approaches $420 it will reach its historical average for the January run. However, if you take into account the Chinese iPhone 4S launch and you factor in the performance of Apple stock in a major product launch year (iPhone 2007, iPad 2009, iTV 2012) then you come up with an expected 17.1% return from the end of December lows to the pre-earnings January highs. This year, that kind of return has the potential of taking Apple stock to $441 sometime before the January 24 earnings report.
Disclosure: I am long AAPL.