MoneyShow's Jim Jubak thinks there'll be another basket of new rumors ready to pick up the slack after the September 9 news from this tech behemoth, so he's not 'selling on the news,' he's raising his target price as of today, August 27.
Buy on the rumor; sell on the news is pretty good advice for stocks in the hype-driven technology sector. But it isn't always easy to apply-especially if it's hard to figure out what rumors have reached general circulation, which are still available to drive a stock, and which are ripe for disappointment when the actual news arrives.
That's the rock-and-a-hard-place position that I find myself in with shares of Apple (AAPL) as we approach the September 9 event expected to announce the iPhone 6.
Shares of Apple have been in rally mode, climbing 36% from April 23 to August 25 and hitting an all-time high, on anticipation of the launch. My normal reaction here would be to sell the news on the theory that the actual iPhones to be announced on September 9 can't possibly live up to expectations.
However, I think that's wrong in this instance. My reason: I think there's another basket of rumors ready to pick up the slack after the September 9 news. I think there is a good possibility of a modest drop on the news-I wouldn't be surprised by 5%-but I think these new rumors will give the stock legs into December.
Okay, if all Apple had in the pipeline was the iPhone 6 for a September 9 launch, I think selling on the news would be smart. There is a chance, relatively small, I think, that Apple will announce the launch of a 4.7-inch iPhone but report a delay (or a longer than expected delay) on the launch of the iPhone 6 with an even bigger 5.5-inch screen. (There have been the usual rumors of problems with screen yields on the 5.5-inch model at Apple suppliers. But then there are always rumors of problems at Apple suppliers before a launch.) A delay would add to the possibility of investor disappointment when everyone sees that despite a bigger screen and faster operating speeds, the iPhone 6 is still just a smartphone. It doesn't sing; it doesn't dance; and it certainly doesn't reinvent the category.
But the iPhone 6 isn't all that Apple has got stashed away in its news to rumor bin. Today, John Paczkowski on Re/code is reporting that Apple will unveil an iWatch along with the iPhone 6 at the September 9 event. (Back in June, Re/code reported that Apple planned to schedule a second event in October to launch the iWatch.) Anticipation of a September 9 iWatch announcement is certainly enough to keep Apple shares moving up on the rumor. And in this case, with an October schedule as a fall back rumor, I think the odds of a significant disappointment on the news are relatively small.
And even that's not the end of the Apple rumor pipeline. Apple watchers say the company's suppliers are prepared to manufacture a new larger-than-ever iPad with production scheduled to begin in the first quarter of 2015. The new iPad will have a 12.9-inch screen, much larger than the current 9.7-inch and 7.9-inch models.
Apple's iPad line up is badly in need of a refresh since the company has been bleeding share to tablets based on Google's Android operating system. Last year, Android tablets took 62% of the market, according to Gartner, with the iPad slipping to a 36% share down from 53% at the end of 2012.
Much of the growth in the tablet market has come at the lower price end of the segment and an iPad with a bigger screen wouldn't change that dynamic. But an iPad with a bigger screen would appeal to the business segment Apple has targeted with its new partnership with IBM (IBM). When Apple and IBM announced that effort in July, Apple CEO Tim Cook said that part of the goal was to sell iPads to businesses and to make that "a catalyst for future iPad growth." Market researcher IDC projects that businesses, schools, and governments would be big customers for a tablet with a larger screen and that this part of the tablet market accounted for 16% of sales in the second quarter of 2014, up from 13% in the second quarter of 2013.
All these "rumors" argue for holding onto Apple shares into December. At that point, I'd re-evaluate to see how we stand on rumors of Apple's December quarter earnings and the possibility for disappointment then on the news.
As of August 27, I keeping these shares in my Jubak Picks portfolio and raising my target price to $120 from $110.
Full disclosure: I don't own shares of any of the companies mentioned in this post in my personal portfolio. When in 2010 I started the mutual fund I managed, Jubak Global Equity Fund, I liquidated all my individual stock holdings and put the money into the fund. The fund shut its doors at the end of May and my personal portfolio is now in cash. I anticipate putting those funds to work in the market over the next few months and when I do I'll disclose my positions here.
