Apple’s disappointing financial results announcement last week resulted in a great buying opportunity for those wanting to become Apple shareholders. Having plummeted from $600.92 before the results were announced on the evening of Tuesday 24 July, to $574.88 on Thursday 26 July. The stock is currently trading around $585.16.
Morgan Stanley analyst Katy Huberty said: “This is likely one of the last buying opportunities ahead of the iPhone 5 launch as we expect headwinds to reverse.”
Apple is expected to launch the next iPhone in September or October.
Huberty expects that while we are likely to also see disappointing results for the next quarter that ends in September, the shares are likely to take off following the launch of the iPhone 5 (or iPhone 6 – since it will be the sixth iPhone model). She wrote in a note: “Owning AAPL ahead of iPhone product cycles pays off. AAPL shares increased 30% on average and outperformed the S&P 500 by 27% on average in the three months leading up to prior iPhone product announcements. We expect similar strong performance ahead of iPhone 5 which we believe will feature LTE connectivity and a new form factor (thinner, new casing). While weaker than expected Jun/Sept Q results are disappointing near-term, it potentially sets up for even stronger sequential results in the December quarter,” reports SFGate.
Her sentiment was echoed by Deutsche Bank analyst Chris Whitmore who said: “We recommend investors Buy AAPL ahead of the iPhone 5 launch”.
High expectations for the next iPhone are behind the positive outlook. Steven Milunovich of UBS said: “The good news is that more pain now might mean more gain when the iPhone 5 ships, and we haven’t changed our 2013 outlook, notes CityWire.
Kofi Bofah of Onyx Investments demonstrates a similar sentiment about the future value of Apple in a piece he has written for Seeking Alpha.
Apple’s cool status is important to its future success, notes Bofah (a point highlighted by a London based judge recently). He writes: “Apple will retain its monopoly on cool”, noting its “brand appeal as an ode to the counterculture set” and that: “In business terms, “cool” translates into pricing power and fat profit margins. Consumers will happily buy in at any price to join the movement.”
Bofah also describes how Apple squares up to its competitors, who he notes have “closed ranks to challenge Apple’s dominance”. He writes: “The competition, however, has destroyed its own self through its copycat ways,” adding: “The technology business proves that “cool,” hefty profit margins are applied to alpha leaders, and not beta followers.”
He concludes: “Google, Samsung, Microsoft, and Amazon will design practical machines to battle over price-conscious consumers, while Nokia and Research in Motion are simply fighting for their corporate lives.”
According to Bofah: “Rather than losing share to competitors, Apple is actually cannibalizing its own profits.” He notes: “Formerly blockbuster hits [Mac and iPod] are nearly immaterial to shareholder returns,” and “As a mini-computer, [iPhone] features overlap the iPod and iMac platforms.”
“The upcoming iPhone 5 launch will not necessarily be a game changer, but it will put Apple back on track for another blowout quarter,” he writes.
Investors should exercise some caution in the current economic environment. Apple admitted that it saw some slow down in the European markets during the just past quarter, and the results from China weren’t as good as analysts had expected. It’s also worth noting that austerity measures may come into force in the US in January 2013. Another factor to consider is what will happen if Apple loses the case against Samsung. Also, note that on a daily basis, it is possible that positive news from the Apple verses Samsung trial may cause the stock to improve from day to day.
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