Apple (AAPL) has had quite a run during 2012. Even with the recent weakness, it's up 40% year-to-date. Given that estimates have gone up right along with the share price, earnings multiples continue to be undemanding, with the 2012 forward P/E sitting at just 12.1 times, and that's including the large cash hoard in the balance sheet.
In the latest quarter, demand for the iPhone 4S was looking weak in the western countries. However, a huge quarter in China more than made up the difference and helped Apple post another monster quarter.
At this point, it might make sense to see if, beyond the still attractive valuation, there are still catalysts to sustain and perhaps even propel Apple forward. What I will make here, is a compilation of those catalysts.
Apple TV set
Apple is strongly rumored to be near entering the TV market. It's a natural extension for Apple, as smart TVs are now starting to gain the public's interest and Apple can extend its iOS franchise into such a device. Moreover, Apple's brand is so powerful, that should Apple choose to enter the market, it's a near certainty that it will be able to sell a premium TV product in large numbers.
Apple's TV set should be a smart TV with CPU/GPU processing power comparable to the new iPad, and able to draw apps from the iOS ecosystem. Such will put it on a collision course not only with TV manufacturers, where Samsung is the leader, but also with gaming console makers, where Microsoft (MSFT) and Sony (SNE) are the largest players.
The timeframe for Apple's TV set seems to be 2013, with a lower probability that the set might be ready for 2012's holiday season.
The relevance of Apple's TV set comes from the fact that it enables Apple to start up another decently-sized segment. Even a 5 million unit estimate with $1.5k price comes to $7.5 billion yearly revenue, or about 4.6% of Apple's 2012 consensus revenue. Still, even this kind of market segment still shows how Apple remains so reliant on the iPhone to make its numbers.
A small aside - the latest Apple TV rumors by Cult of Mac show the new device having large bezels. I don't believe such will be the case once the device is presented. The bezels might make sense in tablets and smartphones due to the touchscreen needing a place for the user to rest his fingers. The trend in TV design is clearly towards TVs without bezels and Apple surely won't disappoint there.
The new iPad
The new iPad had its launch at the tail end of Q2 FY2012 (March 16 2012). As such, it will be one of the products holding Apple's earnings together during Q3 FY2012. Q3 FY2012 is rather critical as the iPhone slowdown evident on Q2 FY2012 in the developed markets will probably intensify.
As a small aside, there's also a rumor Apple might launch a 7.85" iPad, a smaller form factor to better compete with Amazon.com's (AMZN) Kindle fire as well as other 7" tabs from Samsung and others. This smaller iPad would draw on iPad 2's specs including the screen resolution, making it a rather easy product to launch, perhaps explaining why the rumors place it in the market as early as August. Still, even if this comes to fruition, it doesn't look like a product able to pull giant numbers, and that's perhaps what makes it less likely to ever see the light of day, especially now that the Kindle fire seems to be floundering in the waves.
China was the factor that saved Apple's Q2 FY2012. And yet, it did so without Apple even having set up a deal with China Mobile (CHL), China's largest mobile operator by far, with around 2/3 of the market. This means that in spite of Apple having surprised on the upside in Q1 2012 due to China, room remains for China to surprise even more.
China represented 20.1% of Apple's revenues in Q2 FY2012, again, without selling directly into China Mobile. This means that with China's market fully addressable, China might have the potential to represent up to 50% of Apple's revenues.
Until China's potential fully materializes, namely with a full quarter of sales into China Mobile, there will always be some room for explosive growth. This is perhaps the second largest catalyst that Apple can have.
The main catalyst, however, remains the iPhone. In this case, the iPhone 5, rumored to be launched in September or October 2012. With the iPhone representing 57.9% of Apple's sales in the latest quarter, and certainly more than 75% of its gross margins, Apple has both a blessing and a curse in the iPhone. It's a curse because Apple does not have the leeway to get the iPhone wrong as that would certainly hit the stock hard. It's a blessing, because Apple has mostly gotten it entirely right this far, and when Apple does get it right, the impact on earnings is tremendous.
Certainly, as we approach the iPhone 5's launch, there will be positive speculation on it, the blogs, websites and magazines will be covered with speculation on its design and features, and this can clearly draw investors and traders towards the stock.
A small aside here again, in the past I've shown a patent describing an all-glass Apple device. I've also uncovered a part of Steve Jobs' biography that got cut out of the English version, and it too speaks of the possibility of an all-glass iPhone. There's also a rumor that Apple might resort to "liquid metal" (LQMT.OB) to build the phone's case.
Negative - Seasonal lull, iPhone 5 anticipation
Not all potential catalysts are positive. In this quarter again Apple faces slowing demand for the iPhone 4S in the developed markets, something that was already evident in Q2 FY2012, but that China entirely masked. It remains to be seen whether China can pick up the slack again in Q3 FY2012, especially when we take into account that in addition to slower seasonal demand, the quarter will also have a drop off on account of the iPhone 5 anticipation.
This catalyst could be mitigated by an announcement by Apple of the iPhone's availability in China Mobile, though it's now getting less and less likely that we will see such development this quarter.
No matter how far Apple has already come, it still has several significant positive catalysts ahead of it. Given this and the undemanding - cheap even - valuation, it remains a reasonable investment even in spite of its over-reliance on the iPhone. And it certainly is not a short candidate - something some traders might consider on account of its "huge" share price.
The Q3 FY2012 does present some risk because of slower iPhone demand in developed markets as well as iPhone 5 anticipation.
Disclosure: I am short AMZN.