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New Century observes stocks, markets and the economy from a modern, sometimes contrarian viewpoint. New Century focuses on publishing ideas or themes not known or not discussed by many other observers.
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  • How To Trade Apple'S Date With "Nightline" 0 comments
    Feb 21, 2012 1:23 PM | about stocks: AAPL

    Tens of millions of people around the world have opened one of those sublime, white boxes to marvel at the brilliance of the iPad, but no one from the outside has ever seen how these machines are built. Until now.

    The above quote is spoken by Bill Weir, in a special that will air on Tuesday evening, February 21st, on ABC's Nightline. The special focuses on working conditions at the massive contract manufacturer Foxconn.

    Not surprisingly, the piece will center around Apple (NASDAQ:AAPL), who is one of Foxconn's largest customers. However, most other large electronics companies also use Foxconn's services, so singling out Apple isn't really fair - this isn't an Apple issue, it's really a moden electronics manufacturing issue. Nonetheless, since Apple will be the focus of the piece, there is always potential for stock-market effects.

    If conditions shown in the report are absolutely atrocious, there may be potential for some short-term downside. While mutual fund managers and sophisticated investors aren't likely to sell Apple shares based on a report containing information that is (almost certainly) already well-known, there could be some light selling from retail investors who may be troubled by anything that is seen as unacceptable in the report. There is also the small potential for truly unacceptable behavior to surface, which would indicate that major, costly changes would need to occur that will ultimately affect Apple's business.

    But if shares do fall, it should prevent long-term bulls with a great buying opportunity. Apple and Foxconn have both already taken actions to improve, respectively, the standards its suppliers must adhere to, and the treatment of its workers. Apple's margins are very healthy and growing, so the effects of minor wage increases at Foxconn or other costs that are the result of safety or quality-of-life improvements shouldn't be too painful.

    I think that this report is actually a great opportunity for resolution of this issue to begin to occur. Foxconn has been in and out of headlines for years, and news has become more frequent in the past few months. If the report can demonstrate that conditions are acceptable, or even just that uncovered shortcomings are being acknowledged and improved upon, I think that current and potential Apple customers will feel even better about buying Apple products. Such action will also demonstrate Tim Cook's management ability, building shareholder confidence.

    Apple longs, shorts, and any consumer of modern technology should probably watch the report - it's good to understand where our gadgets come from, even if that means recognizing that other people may suffer to provide us with our toys. But I don't expect the report to move shares meaningfully to the downside in anything but the immediate term, which will only allow investors to enjoy discounted pricing on already-cheap Apple shares.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Stocks: AAPL
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