Apple's Media Tablet Will Cause the Stock to Rocket

Apr. 29, 2009 4:36 AM ETAAPL, VZ, T45 Comments
Jason Schwarz profile picture
Jason Schwarz

To get an idea of the kind of impact Apple’s (AAPL) Media Tablet might have on Apple stock, let’s review the iPhone precedent. 2007 was a great year to be an Apple investor as the stock rose 31% prior to the unveiling of the iPhone, then it went up another 32% before the iPhone actually went on sale, and then it surged 62% between June 9th and Christmas day as iPhone sales surpassed expectations. Can lightning strike twice for investors? It happens all the time.

The coming Media Tablet may very well have the same positive impact on Apple stock in 2009 as the iPhone did in 2007. Apple is on the brink of adding another leg to its innovation empire as they prepare to introduce us to an entirely new product category. Manufacturing reports suggest that the Media Tablet will have a 10 inch touchscreen that could be even thinner than the iPhone. It will be the ultimate newspaper/magazine replacement catering to those Internet users looking for the perfect portable reading device. Wireless connectivity will further expand the dominance of Apple’s App Store as games, books, education and news software will finally function on an ideal piece of hardware. The Media Tablet will be the first computer with the capability to utilize the App Store platform that has already generated over 1 billion downloads since it was launched in July 2008.

According to the WSJ, Steve Jobs has been working on this Media Tablet from home during his leave of absence. Don’t be surprised to see Mr. Jobs back on stage to unveil the product when he is scheduled to return to Apple at the end of June. Also don’t be surprised to see him perform a demo of iChat on the new device. Apple has held off incorporating iChat onto the iPhone for reasons unknown, perhaps the Media Tablet will take this mode of communication to a new level of popularity.

Many have been wondering what Apple and Verizon (VZ) have been discussing in their confirmed meetings over the last six months; consensus speculation anticipates that Verizon might be on the verge of offering the iPhone as soon as AT&T’s (T) exclusivity deal expires. This doesn’t seem likely. Apple has been consistent in saying that it doesn’t want to build an iPhone for the limited Verizon network and I highly doubt the company will change its mind. It makes more sense to speculate that these talks are negotiations regarding the Media Tablet. To have a wireless internet connection available through both AT&T and Verizon would allow tablet distribution to far exceed the iPhone’s. Apple's product probably will require that the same phone number be used for your cell phone as well as the tablet, the tablet service will simply be added to your existing cellular contract. Service similar to the iPhone may also be part of the negotiations, thereby allowing Apple to offer low prices that no one can compete with.

Beyond the Media Tablet, Apple stock also responds to the health of the economy. For the last 18 months the economic data points have been getting worse, which has brought down Apple along with the rest of the market. However, now that the threat of bank failure has been taken off the table and economic data points are beginning to improve, Apple is poised to reap the benefits of its stellar performance throughout the recession. Since the recession began, Apple has doubled its cash on the balance sheet to $30 billion and it has substantially increased its market share among computers and smart phones despite the Steve Jobs health scare and despite the weak global tech demand. With such problems now in the rearview mirror and President Obama pushing his agenda to reignite the spirit of American innovation, it is clear that the economic environment is fertile to invest in Apple once again.

The iPhone stock trend shows us that the new Media Tablet could take this stock to $267 by December 25, 2009. This catalyst, along with the other catalysts in Apple’s future, could propel this stock towards $300 a share. These other catalysts include:

  1. Steve Jobs officially returning to the company at the end of June.
  2. The release of a new iPhone.
  3. The iPhone launch in China.
  4. Improved consumer confidence for the 2009 holiday shopping season.

Because of these recent developments, Apple is a better investment at $125 on May 1st than it was when it dipped into the $70s in January. True, this is a second half of the year stock and this year you might see some fireworks coming from Apple. I will diversify my position in Apple but my favorite play is the January 2010 Apple $200 calls which you can pick up for 1.55. The tech revolution is just getting started and Apple is the unquestioned leader.

Disclosure: Long AAPL.

This article was written by

Jason Schwarz profile picture
Jason Schwarz authors the popular Economic Timing investment newsletter. His fundamental and technical research has become a primary resource for hedge funds and individual investors.

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