After a difficult year, Apple – almost flat YTD compared with a 27% rally in S&P500 – seems to be on its way to recovery.
Since Q4 earnings release the stock has already rallied 10%, but especially this week a new wave of optimism has pushed the stock higher.

There are many good news that are now bringing back investors that had lost faith in Apple.

First of all the competition is not growing as expected. For example Samsung, although now spending over $14B  in advertising (more than Iceland GDP), is facing some difficulties on Galaxy products: the S4 did not take the market share as anticipated at launch and the Galaxy Gear (Samsung Smart watch) was not very welcomed by costumers (especially for its 299$ price tag and its compatibility only with Galaxy Note 3).
A year ago “A more competitive environment” was frequently claimed to justify the stock downtrend while today we know that Apple is instead winning over competitors with stronger than ever sales:

  • On September the Japanese carrier DoCoMo added iPhone to its products and this resulted in a huge growth for AAPL in the Japanese economy: Kantar World Panel reported that in Japan Apple last quarter won 76% of smartphone sales  (more than 2 out of 3 Smartphone sold were iPhones)
  • The WSJ reported that iPhone 5s  production had been ramped up and output is at record high of 500.000 pieces a day, Foxconn is said to have approximately 300.000 workers dedicated solely to the 5s and its components
  • Also iPad Mini production is said to have almost doubled from 2M to 4M to keep up with demand
  • According to Fiksu, that tracks iPhone usage, the 5s is gaining ground faster than the iPhone 5 launched last year: 70 days after launch, 5s usage already represents 7.97% of total iPhone usage compared to 7,10% of iPhone 5 at same period after launch


  • iPad Air is also selling stronger than any other iPad did, 28 days after launch the iPad Air total usage represent 2,62% of all iPad usage compared to a mere 0,84 % of previous iPad 4 at same period after launch


Another relevant factor will be the buyback program: investors call for a larger buyback will unlikely remain unnoticed. We don’t expect Tim Cook to boost it to $150B as asked by Icahn, but an increase is very likely to happen.

Moreover world largest carrier with 700+ million users, China Mobile (CHL), has declared that on December 18th they will release a “special announcement”: speculation is growing that on that date the iPhone will be adopted by the carrier. CHL adoption of iPhone could strongly help Apple expanding further its user base.

Lastly, from a broader point of view, we can see that tech and internet stocks are flying higher and higher in the last months, casting doubts over a bubble-like pattern. In this context a quick analysis immediately shows that Apple appears as one of the “less over-valued” companies.
For all these reasons we think that Apple is a must-have stock going through holiday season. On January earning release we expect blowout sales reports and the stock topping 600$.


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Apple(s) & Oranges : BSIC | Bocconi Students Investment Club · 9 March 2014 at 8:14

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