Play The Fears, Rumors, And Periphery For Apple

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 |  Includes: AAPL, GLW, S
by: The Archivist

I have seen quite a bit of negativity surrounding the rumors of the new iPhone, and the link is not the only article, but it is enough to get a semblance of the opinions. Between those rumors, soft earnings, and the overall weakness in the market, opportunities are materializing. I do not doubt that the iPhone 5, and to a lesser extent, the smaller iPad, will be big sellers. Focus on the iPhone though. The sales numbers of the previous generations of the iPhone show this clearly, with sales rising with every generation of the iPhone. Estimates for the future are high as well.

The iPhone will be great for Apple (NASDAQ:AAPL). Even if the new one does a bit worse than the iPhone 4S, the sales should still bring in a good amount of revenue, which is why I am unconcerned with all the negative rumors. Still, those rumors can have a gnawing effect, especially with the market so soft right now. Jobs, slow growth, and other factors are weighing on stocks. However, it is safe to assume that the new products will add to Apple's coffers, judging by all the previous data. So let us take that fear and explore its effects. Also, look to other companies that might benefit, or be harmed, by the release of the iPhone.

Trade Ideas

I think the new products will be great sellers. Whatever weakness we see due to these rumors and the long wait until the announcement is an opportunity to grab some Apple. Bad news might keep chipping away at it, though sometimes Apple has a bad habit of staying green on red days. I do not think I will be grabbing shares, because I do not that have that kind of money to throw at 1 share. I might grab some calls. Lots of buzz is going on about September, and I might play into that. At least for now, you can keep an eye on it. Maybe I will get some longer dated calls far out-of-the-money if they are cheap enough. I know Apple is a big mover, so I'm not too concerned if I have enough breathing room and use proper position sizing. The strength I see during the next piece of bad news out of Europe will let me gauge how far out of the money to go. Right now, I am looking at the $680-$690 calls. These are higher risk, but the reward will be good. Since they are so cheap, I can limit my absolute risk by having a smaller position.

There are some other companies you can buy to play the same news. I think it is the consensus that Gorilla Glass will be used on the iPhone 5; perhaps you can pick up some Corning (NYSE:GLW), which I have written about before. However, I am not sure of the impact this could have. I own some Corning, but no options, because I do not believe it will move enough.

I still like Corning on a fundamental level. It has low debt, and a good amount of cash on hand. They are getting hurt by the weakening TV glass market, but this provides a great opportunity for entity. Corning has a history of innovating to stay relevant. I think they can do it again. For now, it is Gorilla Glass, but in the future, it will be Willow Glass. I think they will continue innovating into the future. For more detailed analysis, look at the Corning article linked above. After looking at Corning, you can consider the effect on carriers.

Sprint (NYSE:S) is my carrier of choice to invest in, and it might see good things as a result. Its new prepaid iPhone plan through Virgin might be a seller. I know lots of people who just hate contracts and might opt for the costlier phone. They really hate contracts enough to spend that kind of money, and I think this is a good way for the industry to go. I have seen an article point out the lack of interest and fanfare, but the recent earnings call pointed out that Sprint has not started marketing the prepaid plan yet, but it did point out that 40% of iPhone customers were new to Sprint. Fewer subsidies paid by Sprint would be great for a company in its position; it can either shore up cash or make even bigger network upgrades.

Sprint's prepaid plan has the potential to win new customers, because it offers the chance of no contracts. I like January 2013 $5 and $5.50s, starting to look at January 2014 $6. I have written about Sprint and my entry strategy before; I focused on long dated calls. I would also look to how the prepaid plan is received, and if it looks like it will help Sprint turn extremely profitable. Not dishing out subsidies on the phone should help the balance sheet.

There you have it. Look for opportunities stemming from Apple, such as Sprint and Corning, because Apple itself is so expensive. Sprint has been moving fast lately, but Corning moves slower.

Let me go over a quick timeline. I am focusing on Apple for September around the expectation of news on iPhone and maybe mini iPad. I would focus on Corning between the announcement of the phone and the release date, because it will see their sales during production. Corning is trickier, but I believe in it enough to own some shares and sit on them.

I would focus on Sprint at my LEAPS expirations in January 2013 and 2014, and also on a monthly basis after the first complete quarter following the release of the next iPhone. I want a complete quarter, because I want to have enough time for sales to pick up and have a meaningful impact, and to expose some longer-term trends in Sprint's revenue and profitability. So if the phone was released the last month of Q2, I would be looking at Q3 earnings. Additionally, revisit Apple after it actually books some sales. I have been discussing playing the announcement, but do not forget to look at Apple again after a quarter of sales.

Disclosure: I am long GLW.