Samsung's Recent Foibles Should Be Good For Apple

| About: Apple Inc. (AAPL)
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Apple's main competitor, Samsung, is struggling of late.

This is a minor positive as shareholders await quarterly earnings as well as a dividend hike later in the month.

The stock also looks set up for a similar rally in the second half of the year like the one that occurred in 2013.

There is a certain amount of delight when the biggest competitor of a company whose stock one owns starts to stumble. Apple (NASDAQ:AAPL) stockholders have had little to cheer about so far in 2014 as the stock remains in the same tight trading range it has been in all year after big gains in the last half of 2013.

However, they can at least take some satisfaction in the recent disappointing happenings over at Samsung (OTC:SSNLF); by far its biggest competitor in the critical smartphone market.

The giant Korean conglomerate announced this morning that operating profit fell for the second quarter in a row in Q1, dropping a preliminary 4.3% to 8.4T won ($7.96B) and vs. consensus of 8.5T won. Sales rose slightly to 53T, but missed expectations of 54.58T won.

More importantly, the release of a new version of its Galaxy line of smartphones has gotten flat at best reviews. The consensus seems to be that the new Samsung Galaxy S5 is an "Upgrade You Can Skip" as although there are some refinements in the new version there are no "must have" features. Initial sales also seem to be off to a slow start.

Widely followed tech reviewer Walt Mossberg found the new version of the Galaxy neither exciting nor novel. He also calls out the new fingerprint sensor as significantly inferior to Apple's capability.

Of the reviews I have read so far, my favorite is the one in the Wall Street Journal by Geoffrey Fowler who has a couple of pertinent comments such as "The larger screen is probably the Galaxy's single biggest advantage over the iPhone, but with the S5, Samsung took a step in the wrong direction as the Galaxy S5 is actually heavier and wider than its predecessor" and "iPhone users itching for a larger screen should wait, however, to see what new form factors Apple might deliver this fall."

The iPhone 6 is widely expected to have larger screens. This is the most significant advantage that the Galaxy product line currently enjoys over the iPhone. This author has a Galaxy 4 simply because his old eyes appreciate the larger screen, but plans to change to an iPhone as soon as the new larger screens are available. I don't think I will be the only one.

Apple seems to have an opportunity to take a large step up on Samsung later this year, as it appears the Galaxy S5 seems to be falling flat. As such, the iPhone has an open playing field to deliver a clearly superior smartphone.

Until then, Apple shareholders will be tuning in to Apple's next earnings report in about two weeks. I will be watching to see if Apple can maintain its operating margins, as well as how many iPhone sales the new distribution deal with China Mobile (NYSE:CHL) has driven. The company is also expected to announce a higher dividend payout and an increase to its stock repurchase program authorization. Obviously, investors will be watching for details to these increased capital return announcements.

I still believe Apple is a second-half story. The stock had its greatest run up (~20%) in the third quarter of last year leading up to the launch of the iPhone 5C/5S in September. There is no reason to believe this year will be any different as the launch schedule of iPhone 6 should fall along a similar calendar. In meantime, AAPL pays a 2.3% yield before the next dividend hike.

The stock is also cheap at 8.5x forward earnings once one subtracts the company over $150B in net cash and marketable securities on its books. Shareholders should be patient until we get into the third quarter and enjoy watching the foibles of Apple's main competitor in the meantime.

Disclosure: I am long AAPL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.